Firm-level Productivity Research Articles

Bank Loans, Financial Incentives, and the Use of Imported Inputs and Services During the 2008 Financial Crisis

ABSTRACT This study investigates the effects of bank credit, public financial incentives, and tax incentives on the use of imported inputs and services along with the impacts of imported inputs and services on firm-level productivity during the 2008 global financial crisis. The results show that firms that obtained bank credit or benefited from public financial incentives or tax incentives registered a significant average difference in the utilization of imported inputs or services during the crisis compared with those that did not. The results also show that in addition to imported inputs, the use of imported services enhanced productivity during the crisis.

How sectoral technological transformation explains firm-level productivity?

ABSTRACT This study investigates the impact of sectoral technological transformation on firm-level productivity in Croatia from 2009 to 2019. Utilising a comprehensive dataset combining firm-level financial data from the Croatian Financial Agency and Eurostat’s Digital Economy and Society Statistics, we examine how adopting Information and Communication Technologies and digital technologies at the sector level affects individual firm productivity. We employ principal component analysis to construct indices capturing the adoption of ICT and digital technologies and then use multilevel panel data estimation techniques to analyse relationships. Our findings reveal that the ongoing technological transformation has a more significant impact on productivity in the services sector than manufacturing. We also observe that the joint effect of technology adoption and sector growth strongly correlates with productivity, suggesting that technological transformation could be a key driver of sectoral restructuring. Furthermore, we find that market concentration enhances productivity in industry but impedes it in services, indicating potential divergent competitive dynamics across sectors. These results contribute to understanding asymmetric sector evolution and highlight the need for adaptive, sector-specific policy approaches to foster productivity through the combined effects of digital technology adoption and sector growth.

Foreign Ownership and Productivity: A Comparative Study of Estonia, Latvia and Norway

ABSTRACT While attracting foreign direct investments (FDI) has been at the core of the economic policy of many countries since the 1980s, existing evidence of a causal foreign ownership effect on firm-level productivity is mixed. This paper revisits the productivity effect of foreign takeovers on domestic firms. Leveraging administrative firm-level data from Estonia, Latvia, and Norway, we shed some light on the following key questions: 1) “Does the magnitude of the effect of foreign ownership depend on the host country’s level of development?;” 2) “Does spatial, cultural, and economic proximity between the sending and receiving countries play a role in the foreign ownership effect?;” and 3) “To what extent are these effects heterogeneous across industries?” By implementing a propensity score matching procedure, combined with a difference-in-differences approach, our results indicate that the productivity effect of foreign ownership greatly varies across host countries, sectors and FDI’s region of origin. We document an overall positive but heterogeneous effect of foreign acquisitions on domestic firms, with a stronger productivity boost in Estonia and Latvia than in Norway. The effects in each country are concentrated on FDI from particular regions and specific economic sectors. These results suggest that the positive effect of FDI on receiving companies is conditional on both the characteristics of the investor and the acquisition target.

The Impact of Labor Litigation Cases on Firm-level Productivity in Brazil

The Brazilian labor market went through significant changes in 2017 with reforms to reduce litigation and increase flexibility in employment contracts. Using firm-level data, we exploit the variation in litigation cases across Brazilian states to estimate the impact of the 2017 labor reforms on productivity. The results suggest a significant boost in total factor productivity (TFP) for labor- and trade-intensive firms from the decline in litigation costs. High labor intensive firms witnessed an increase in TFP of about 15 percent after the reform compared to low labor-intensive firms. Similar magnitudes are found for trade-internsive firms. There is also some suggestive evidence that the productivity-enhancing effects of the reforms are especially pronounced for small firms.

The impact of digitalization on economic activity in Sub-Saharan Africa

PurposeThe purpose of this study is to examine the relationship between digitalization and economic activity in Sub-Saharan Africa (SSA). The study also aims to discuss the effects of digitalization on human capital, financial development, institutional quality and firm-level productivity and how these channels matter for the relationship between digitalization and economic activity.Design/methodology/approachThe study employs two-stage least squares (2SLS) on an unbalanced panel data set comprising 33 SSA countries over the period from 1996 to 2019. This methodology addresses the potential endogeneity between digitalization and economic activity.FindingsThe results indicate that digitalization has a statistically significant positive effect on the level of per capita GDP in SSA countries. Specifically, a one percentage point increase in the digitalization index is associated with a 2.13% increase in gross domestic product per capita. The study discusses some of the channels through which this effect manifests.Originality/valueThe study comprehensively examines the impact of digitalization on economic activity in SSA. The study also attempts to address the potential endogeneity issues in the relationship and discusses the mechanisms at work.

FDI and trade for foreign market entry: theory and evidence from Estonia

ABSTRACT This article investigates firms' strategies for international expansion, foreign direct investment (FDI) and exports. We use the framework of Helpman et al. (2004) to illustrate how firm-level productivity differences influence these strategies. We extend this model with multifactor production processes, encompassing both trade in goods and services. The model predicts that trade and FDI can be both substitutes and complements. Our empirical analysis uses detailed Estonian firm-market-level data to explore the model's predictions by estimating the intensive and extensive trade margins and internationalization choices of firms between trade and FDI. The empirical findings indicate that selection into exporting is determined by past productivity. There is evidence consistent with spillover effects in goods exports from other exporters to the same destination. Outward FDI complements both goods and services exports. Our findings underscore the complexity of firms' choices for international expansion, urging a nuanced dichotomy between FDI and exports.

CDM FRAMEWORK FOR R&D–INNOVATION–PRODUCTIVITY RELATIONSHIP: THEORETICAL AND EMPIRICAL PERSPECTIVES

This research uses the CDM framework to examine the relationship between R&D investment, innovation activity, and firm-level productivity. The study provides clear insights into the mechanisms that link innovation and economic performance by addressing methodological challenges such as selectivity bias and simultaneity. The findings show that innovative firms experience higher productivity growth, with the impact varying across regions and industries. The research also defines five stylized facts: the positive influence of firm size and age on innovation, the role of competition in driving innovation, the importance of workforce qualifications and professional development, the complementary role of IT investments, and the significant effect of innovation on productivity growth. These insights form a foundation for policymaking that foster innovation and boost productivity growth.

Fixed-term contracts and firm productivity: Do workers’ skills and firm conversion rates from fixed-term to permanent contracts matter?

PurposeWe aim to elucidate the relationship between fixed-term employment and firm productivity by examining workers’ skills and considering how firm-level conversion rates influence this relationship.Design/methodology/approachWe use longitudinal employer-employee data between 2011 and 2017 in the Netherlands to estimate a nonlinear regression derived from a production function proposed by Addessi (2014) and Castellani et al. (2020).FindingsThe contribution of fixed-term contracts to firm-level productivity is less than that of permanent contracts. However, this contribution is greater when firms exhibit a high conversion rate from fixed-term to permanent positions. The effect of the conversion rate is more substantial for high-skilled fixed-term workers than for low-skilled ones.Originality/valueOur results suggest the extent to which firms benefit from fixed-term contracts when these are used for screening high-skilled workers for permanent employment.

Credit Market Frictions and the Linkage Between Dispersion and Macro Uncertainty

Cross-sectional dispersion and macro uncertainty (volatility of aggregate economic variables) are conceptually distinct. However, empirically, they both comove and are countercyclical. This paper builds a general equilibrium model and demonstrates that credit market frictions allow cross-sectional dispersion to drive time-varying macro uncertainty endogenously. In the model, as firm-level productivity becomes more dispersed, more firms are pushed to the left tail of the productivity distribution, resulting in more defaults and a depletion in aggregate net worth. This mechanism generates countercyclical leverage and aggregate volatility. The model implies that the government can inject equity in economic downturns to stabilize aggregate volatility. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00166 .

The effect of digital transformation: Boosting productivity in the restaurant industry

The effect of digital transformation: Boosting productivity in the restaurant industry

Adaptability, diversification, and energy shocks: A firm level productivity analysis

Energy economists have long argued that energy systems need to be adaptable in the face of shocks. In the early twentieth century, Denmark embodied the opposite, with its industry almost entirely dependent on imports of coal from the UK. Towards the end of the First World War, however, and well into the 1920s, coal imports became expensive and more difficult to obtain. Local diversification was possible, however, through peat. We exploit detailed microlevel data from butter factories, covering the period 1900–28. Employing an event study approach, we find significant productivity advantages for firms closer to available peat fields in the wake of the coal shortage, and that these gains persisted even when peat was no longer used. Our results thus suggest that public policy might aim to support adaptability for firms less able to transition to more sustainable energy if that is the price of longer-term efficiency and survival.

Firm-level productivity and stock return: New evidence from China

Firm-level productivity and stock return: New evidence from China

New Technologies: End of Work or Structural Change?

Abstract This paper examines the impact of new technologies, particularly automation and artificial intelligence (AI), on labor markets. The existing literature documents ambiguous and only limited overall employment effects, while new technologies induce significant shifts in workforce composition. The implied firm-level productivity gains primarily benefit larger, skilled-labor-intensive firms. AI adoption remains limited but continues to reshape skill demands. The implied worker reallocation is costly, exacerbating inequality. This calls for policies such as targeted support for displaced workers, investment in education and skill development, promoting technology diffusion, and encouraging complementary human capital investments.

How Government R&D Support Directly and Indirectly Affects Firm-level Productivity: Evidence from ICT Industry

How Government R&D Support Directly and Indirectly Affects Firm-level Productivity: Evidence from ICT Industry

The nexus of intellectual property rights and firm productivity in China: A nonlinear approach

This paper explores the way that intellectual property rights (IPRs) protection as a moderator variable affects firm-level productivity gains through innovation (filing patents) and diffusion (importing goods). Applying the estimation method of conditional average treatment effect by Lee, Okui, and Whang (2017) to Chinese firm data, I show the graphic representation of the non-linearity that characterizes the heterogeneous average treatment effects of patenting and importing activities on firm productivity. The graphic results suggest that the productivity effect of patenting is positively influenced by local IPRs protection, while that of importing is initially negatively and subsequently positively affected by IPRs protection. I also find that overstrict protection of IPRs may diminish the productivity impact of both channels, and private-owned firms rely more on IPRs protection to enhance productivity through filing patents.

Mediating factors and spillover effects of foreign direct investment : Evidence from Indian manufacturing firms

Mediating factors and spillover effects of foreign direct investment : Evidence from Indian manufacturing firms

Does tax avoidance affect productivity in SMEs?

PurposeThe present paper examines whether tax avoidance practices affect productivity in small and medium-sized enterprises (SMEs). This study also analyses whether this association is moderated by firm size, firm financial constraints, management control of cash flows, or information risk.Design/methodology/approachThis study used a sample of Spanish SMEs for the period 2006–2020. Tax avoidance was measured as the difference between the statutory tax rate and the effective tax rate, and three proxies for productivity were used: overall productivity, capital productivity and labour productivity. Firm fixed effects regressions, propensity score matching and change regressions were used to address the potential sample selection bias and endogeneity between tax avoidance and productivity.FindingsThe results of the empirical analysis suggest that tax avoidance increases productivity in SMEs. This beneficial effect of tax avoidance was found to be higher in small firms than in medium-sized firms, but smaller in firms that faced financial constraints. Furthermore, the findings showed that the tax avoidance effect on productivity was stronger in firms where managers had less control over the cash flow –i.e. dividend-paying firms–, and weaker in firms with lower quality of financial information – i.e. firms with qualified audit reports.Research limitations/implicationsThis study contributes to the research on the economic consequences of tax avoidance by examining its impact on firm-level productivity in SMEs. From additional analyses, the findings of the study suggest that the positive effect of tax avoidance on firm productivity depends on firm size, the financial slack of the firm, and the costs of agency conflicts and information problems associated with tax avoidance.Practical implicationsThe results of this study have implications for SMEs, suggesting that cash flows obtained through tax avoidance, if properly used, may increase firm productivity. In planning their tax avoidance practices, SME managers could take advantage of specific tax incentives designed for SMEs, which is particularly relevant given the low-productivity levels of these firms. The findings also highlight the importance of maintaining high-quality information and implementing mechanisms to mitigate the agency risks associated with tax avoidance to enhance the productivity of SMEs.Social implicationsThis study provides important insights to policymakers on SME tax policy, supporting the special tax rules for SMEs – in force in many OECD and EU countries – which aim to create an environment conducive to SME growth. The findings of the study also have macroeconomic implications, given the importance of firm productivity as a determinant of economic growth and the relevance of SMEs in most national economies.Originality/valueThis study provides novel empirical evidence on the effects of tax avoidance on firm-level productivity in SMEs. Despite the prevalence of SMEs as the predominant type of organization in most countries, no prior research has comprehensively examined this issue for this type of firm. This research question was addressed by considering proxies for overall, capital, and labour productivity and by examining how SME characteristics affect this relationship.

Impact of Trade Liberalisation and MSME Classification on Productivity of Indian Manufacturing Firms

This article examines the effects of tariff and non-tariff reductions on firm-level productivity of large as well as Micro, Small and Medium Enterprises (MSMEs) in India’s manufacturing sector for the 1999–2009 period. We calculate input and final goods tariffs, effective rates of protection and non-tariff barriers (NTBs) for broad product groups using information from India’s Exim Policy of 1997–2003 and 2004–2009 to examine this impact. We use a balanced as well as unbalanced firm-level panel data set, while accounting for firm, industry, state and time-specific factors. By using fixed effect models and Heckman’s two-step estimation procedure, we find that trade liberalisation is associated with improved firm-level productivity for large firms but not in the case of MSMEs. We posit that this might be due to the relative disadvantages that Indian MSMEs face which prevent them from benefiting from trade liberalisation. We also find that productivity gains arising from the sourcing of imported inputs have been greater than those arising from increased product competition and that NTB liberalisation has had a greater impact compared to tariff liberalisation on firm-level productivity. Changes in MSME legislation and the classification of firms are also found to have a bearing on firm performance. Our study contributes to the literature by confirming the need to focus specifically on constraints faced by MSMEs if they are to benefit from trade liberalisation. It highlights the importance of liberalising trade in intermediates as well as the role of MSME classification in enabling productivity gains. JEL Codes: L6, D24, L1, F13

Human Capital Reallocation across Firms: Evidence from Idiosyncratic Shocks

Abstract We study human capital reallocation following firm-specific idiosyncratic shocks. We analyze relegation battles in the English Premier League, a setting that offers well-identified idiosyncratic shocks as well as both individual-level and firm-level productivity metrics. Following a negative idiosyncratic shock, we find that relatively more productive players move to more productive clubs and maintain their long-term productivity. They get replaced with lower productivity players. Overall, our results show that in a setting with highly transferable and observable skills, idiosyncratic shocks lead to a reallocation of human capital that moves the industry toward a better overall match between individual-level and firm-level productivity. (JEL G31, G32, G33, J24)

The impact of financial tightening on firm productivity: Maturity matters

The impact of financial tightening on firm productivity: Maturity matters