Technical efficiency change and finance constraints: an empirical analysis for the Italian manufacturing, 1989-1994

Vania Sena

Discussion Papers from Department of Economics, University of York

Abstract: The purpose of this paper is to test whether finance constraints create an incentive for debt-constrained firms to improve efficiency along time, using a sample of 1124 firms from the Italian manufac- turing over the period 1989-1994. Technical efficiency change indices are derived using a new approach based on the estimation of distance parametric frontiers. These are then regressed on measures of fin- ance constraints to analyze their impact on firms' efficiency growth. The results support the hypothesis that technical efficiency change is affected by the external resources availability; more precisely, once a firm is subject to finance constraints, it has an incentive to improve its technical efficiency over time to guarantee positive profits and gains in productivity.

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