Firm-level Total Factor Productivity Research Articles

Firm-Level Productivity, Risk, and Return

This paper provides new evidence about the link between firm-level total factor productivity (TFP) and stock returns. We estimate firm-level TFP and show that it is strongly related to several firm characteristics such as size, the book-to-market ratio, investment, and hiring rate. Low productivity firms earn a significant premium over high productivity firms in the following year, and this premium is countercyclical. We show that a production-based asset pricing model calibrated to match the cross section of measured firm-level TFPs can replicate the empirical relationship between TFP, many firm characteristics, and stock returns. Our results offer an explanation as to how these firm characteristics rationally predict returns. This paper was accepted by Wei Jiang, finance.

Firm Level Productivity, Risk, and Return

This paper provides new evidence about the link between firm level total factor productivity (TFP) and stock returns. We estimate firm level TFP and show that it is strongly related to several firm characteristics such as size, the book to market ratio, investment, and hiring rate. Low productivity firms earn a significant premium over high productivity firms in the following year, and this premium is countercyclical. We show that a production based asset pricing model calibrated to match the cross section of measured firm level TFPs can replicate the empirical relationship between TFP, many firm characteristics, and stock returns. Our results offer an explanation as to how these firm characteristics rationally predict returns.

The generation and exploitation of technological change: market value and total factor productivity

In this paper we articulate and test the hypothesis that TFP is a reliable and relevant measure of firm’s innovation capabilities, and, as such, accounts for Tobin’s q indicator. With this aim, we investigate empirically the relationship between firm level total factor productivity and the Tobin’s q. Measuring Tobin’s q allows inferring the actual value of knowledge capital from stock market valuation. We use a panel of companies listed on UK and the main continental Europe financial markets (Germany, France and Italy) for the period 1995–2005. Our results confirm that TFP is a reliable indicator of firm’s innovative capabilities. When we control for firm’s R&D investments and intangible assets, the effects of TFP on market value remain highly significant. This suggests that TFP is a broader measure of innovation capability than R&D is. The validation of the Tobin’s q and TFP relationship has important implications concerning firm’s technological innovation measurement.

The Producer Service Sector in Italy: Long-term Growth and its Local Determinants

This paper analyses the local determinants of producer service growth in Italy, focusing on agglomeration economies. From a methodological viewpoint, we address the critique on the Glaeser et al. (1992)-type employment growth regressions by deriving a reduced-form equation that incorporates variables affecting both local labour supply and local demand for the industry's output. At the same time, by implementing an error-correction approach, we improve on previous dynamic specifications that do not allow for short-term fluctuations along the steady-state growth path. It turns out that long-run employment growth is positively influenced by specialization, with a smaller role played by urbanization externalities. These results are in line with the empirical findings of recent analysis based on firm-level TFP (total factor productivity) estimates, thus providing them with a valuable cross-validation, considering that TFP measurement is far from being undisputed, especially in the service sector. Le secteur tertiaire en Italie: expansion à long terme et ses déterminants locaux RÉSUMÉ La présente communication analyse les déterminants locaux de la croissance des services de producteur en Italie, en se concentrant sur les économies des agglomérations. Du point de vue de la méthodologie, nous axons la critique sur les régressions de la croissance de l'emploi du type Glaeser et al. (1992), en dérivant une équation à forme réduite incorporant des variables affectant l'offre de main-d’æuvre locale et la demande locale pour la production industrielle. Parallèlement, et en réalisant une méthode de rectification des erreurs, nous optimisons des spécifications dynamiques précédentes, qui ne tiennent pas compte des fluctuations à court terme le long du chemin de croissance équilibrée à taux constant. Il en ressort que la spécialisation influe de façon positive sur l'expansion de l'emploi à long terme, un rôle plus limité revenant à des facteurs externes de l'urbanisation. Ces résultats rejoignent les conclusions empiriques d'analyses effectuées récemment, basées sur des évaluations TFP au niveau d'entreprise, en apportant ainsi une importante validation croisée, les mesures TFP étant loin d’être contestées, en particulier dans le secteur tertiaire. El sector de los servicios de productor en Italia: el crecimiento a largo plazo y sus determinantes locales RÉSUMÉN Este trabajo analiza los determinantes locales del crecimiento de los servicios de productor en Italia, centrándose en las economías de aglomeración. Desde un punto de vista metodológico, tratamos la crítica sobre las regresiones del crecimiento de empleo del tipo Glaeser et al. (1992), derivando una ecuación de forma reducida que incorpora variables que afectan tanto al suministro de mano de obra local como a la demanda local en relación con la producción de la industria. Al mismo tiempo, mediante la implantación de un planteamiento de corrección de errores, mejoramos las especificaciones dinámicas anteriores, que no tienen en cuenta las fluctuaciones a corto plazo a lo largo del curso de crecimiento continuo del estado. El resultado es que el crecimiento del empleo a largo plazo es influido positivamente por la especialización, con una menor función desempeñada por las externalidades de urbanización. Estos resultados coinciden con los descubrimientos empíricos de análisis recientes basados en estimaciones de la PFT, las cuales, aunque la medición de la PFT está lejos de ser innegable, les aportan una valiosa validación sesgada, especialmente en el sector de servicios.

Rigid Labour Compensation and Flexible Employment ? Firm-Level Evidence with Regard to Productivity for Belgium

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labor and real average labor compensation to microeconomic total factor productivity (TFP). Our results may be summarized as follows. First, we find that the elasticity of average labor compensation to firm-level TFP is very low contrary to that of labor, consistent with real wage rigidity. Second, while the elasticity of average labor compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labor compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year.

Rigid Labour Compensation and Flexible Employment? Firm-Level Evidence with Regard to Productivity for Belgium

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year

Analysis of Productivity Differences among Foreign and Domestic Firms: Evidence from Germany

This paper presents differences in firm-level total factor productivity (TFP) across 22 manufacturing and 17 service industries in Germany over the period 1995–2004. It is an attempt to study whether and to what extent foreign multinational enterprises (MNEs) are more productive relative to German firms. As well as distinguishing between foreign and domestic firms, we also distinguish between German MNEs and domestic firms that do not have any foreign presence. Controlling for endogeneity through semi-parametric techniques, our findings indicate considerable heterogeneity in firm performance across types of firms. The foreign/domestic distinction is not as clear cut as has been suggested elsewhere; multinationality is important in explaining productivity differences rather than foreignness.

Complexity and Innovation: Social Interactions and Firm Level Total Factor Productivity

The analysis of social interactions as drivers of economic dynamics represents a growing field of the economics of complexity. Social interactions are a specific form of interdependence whereby the changes in the behavior of other agents affect the structure of the utility functions for households and of the production functions for producers. In this paper, we apply the general concept of social interactions to the area of the economics of innovation and technological change. In particular, we discuss how both the knowledge spillovers literature and the Schumpeterian notion of creative reaction can be reconciled within a general framework building on the concept of social interactions within complex dynamics. The paper presents an empirical analysis of firm level total factor productivity (TFP) for a sample of 7020 Italian manufacturing companies observed during years 1996-2005. We show that changes in firm level TFP are significantly affected by localised social interactions. Such evidence is robust to the introduction of appropriate regional and sectoral controls, as well as to econometric specifications accounting for potential endogeneity problems. Moreover, we find evidence suggesting that changes in competitive pressure, namely the creative reaction channel, significantly affect firm level TFP with and additive effect with respect to localised social interactions deriving from knowledge spillovers.

Debt, R&D investment and technological progress: A panel study of Japanese manufacturing firms' behavior during the 1990s

Based on a panel data set of Japanese manufacturing firms in research-intensive industries, we investigate quantitatively the extent to which outstanding debt affected firms' R&D activities during the 1990s. We find that massive amounts of outstanding debt had a significant, negative effect on R&D investment during that time. We also find that R&D expenditures were closely linked to firm-level total factor productivity growth over the same period. In fact, a ten-percentage-point increase in the debt–asset ratio lowered the rate of firm-level total factor productivity growth by 0.26 percentage points between 1999 and 2001, because it reduced R&D activities. J. Japanese Int. Economies 21 (4) (2007) 403–423.

Debt, R&D Investment and Technological Progress: A Panel Study of Japanese Manufacturing Firms in the 90s

Based on a panel data set of Japanese manufacturing firms in research-intensive industries, we investigate quantitatively the extent to which debt outstandings in the 90s affected the firm's R&D activities. We find that massive debt outstandings had significantly negative effect on R&D investment in the 90s. We also find that investment on R&D was closely linked to the firm-level total factor productivity growth in the 90s. In fact, ten-percentage-point increase of debt-asset ratio lowered the firm-level total factor productivity growth rate by 0.72 percentage point for 1999-2001 by way of withering R&D activities.

Trade reorientation and post-reform productivity growth in Bulgarian enterprises

This paper analyzes the importance of integration into world markets following the collapse of central planning in explaining the productivity growth performance of Bulgarian firms. Using a large panel data set on 1,300 manufacturing firms for 13 quarters, we find that a shift towards sourcing from - and exporting to - OECD markets is a significant factor explaining firm-level total factor productivity growth.