Firm Productivity Research Articles

The Matthew effect: Evidence on firms’ digitalization distributional effects

This paper explores the relationship between Information and Communication Technologies (ICT) diffusion and labor productivity at the firm level. We propose a model that explains labor productivity based on firm-specific characteristics (sector, size, location and year fixed effects), on the level of diffusion of digital technologies, and on human capital. We use quantile regression techniques to gain a more precise understanding of the association between ICT's diffusion and labor productivity for a heterogeneous firm landscape. Our results show that more productive firms are able to extract higher gains from digitalization than low productive ones, which exacerbates productivity differences between them. This requires from a tailor-made policy agenda to promote firm convergence, focused on helping firms to extract the most of digitalization.

Informal sector in India and adoption of digital technologies

PurposeAccording to the Government of India’s Ministry of Labour and Employment Report (2015), almost 90% of the Indian workforce can still be categorized as informally employed, generating approximately 50% of the national product. Challenges with data availability have made a rigorous analysis of the informal economy in India often difficult and inadequate for policy formulations. This study aims to fill the gap by providing an empirical analysis of the informal economy in India using micro-data from the World Bank’s Informal Enterprise Surveys.Design/methodology/approachThe authors contribute by empirically testing the association between the adoption of digital technology (payments) and firm performance proxied by firm sales. Matching models are used to mitigate sample selection bias arising out of simultaneous sample selection.FindingsThe results suggest that the participation in digital platforms, namely, use of digital payment instruments, is associated with higher sales for firms. The results of this study also show that adoption of digital payments helps in both situations – whether a firm has been using digital technology or has just started using it since the outbreak.Research limitations/implicationsMore in-depth data over time, spanning across more cities of India, is needed to conduct a further detailed investigation.Social implicationsThe results should allow policymakers in India to reconsider youth-centric and women-centric business needs, even within the informal sector, which does not often enter the purview of the government but remains responsible for the growth and sustenance of 90% of the country’s workforce. If further research on this issue could engage with the impact of demonetization of currency in 2016 as a lagged shock on sales and reestimate subsequent growth, it would perhaps offer a wider spectrum of how the performance of the informal economy in India affects the entire economy, which has over the last four years and before the onset of Covid reported slower growth.Originality/valueProductivity is measured in terms of sales of informal firms in India in a regular month or in recent period like last month. Adoption of technology such as making payments using digital platforms can enhance productivity of firms by lowering standard transaction costs and time spent for visiting banks or financial institutions. Albeit not extensively, the literature has investigated digital technology adoption in the context of firms achieving comparative advantage (D’Ippolito et al. 2019; Scuotto et al. 2017), firms generating value creation (Magistretti, Dell’Era and Petruzzelli, 2019), and in helping with strategic initiatives and agility of firms (Ghezzi and Cavallo, 2018; Piccoli and Ives, 2005). Nonetheless, it would incur certain fixed costs, including acquiring skills and awareness, to manage digital platforms. In addition, physical access to instruments such as smartphones or computers and internet connectivity are prerequisites for productivity enhancements. Firms belonging to the informal sector in India generally face these challenges but may also benefit significantly following successful adoption. To the best of the authors’ knowledge, this is the first study to conduct a preliminary empirical analysis of the impact of digital technology adoption on the performance of informal sector firms in India.

Financial Constraints, Investment Climate and Firm Productivity of Small and Medium Enterprises (SMEs) in India

The study’s major aim is to explore the effects of financial constraints and the investment climate conditions on resource misallocation and productivity of Indian Small and Medium Enterprises on a larger sample of 6,932 firms using data from the World Bank Enterprises Survey, 2014. The current study employs Hsieh and Klenow model (2009) and Stochastic Frontier Analysis to measure the distortion in input misallocation and firm productivity, respectively. The study’s major findings suggest a distortion of resources in capital and labour, but the extent of misallocation is more significant in the case of capital. Financial constraint significantly affects the marginal productivity of capital and labour and firms’ total factor productivity. Investment climate conditions such as red tape and harmful competition are critical to achieving the productivity gap of capital. Further, red tape in the system adversely affects the efficiency and productivity of firms. Hence, in addition to access to finance, focus on investment climate conditions such as red tape and harmful competition should be given while framing policies to support Small and Medium Enterprises in India.

Does Confucian culture reduce firms' pollution emissions

AbstractThis paper explores the influence of Confucian culture on firms' emissions. We measure Confucian culture during the Ming and Qing dynasties using the density of jinshi in that region and test the causal relationship between Confucian culture and firms' emissions using the Annual Survey of Industrial Firms (ASIF) and China's Environmental Statistics Database (CESD) from 1998 to 2013. Our research reveals that regions with a stronger Confucian cultural influence have a significant reduction in pollution emissions from their firms. Further analysis demonstrates that the government in regions with a strong Confucian cultural influence attaches more importance to environmental protection and enforces stricter environmental regulations on firms. Besides, the people demonstrate heightened environmental awareness, incorporating it into economic development, thus reducing firms' pollution emissions. In addition, Confucian culture can reduce pollution emissions by improving the total factor productivity of firms.

Doing well by doing right: heterogeneous effects of tourism firms’ social responsibility on service productivity and profitability

ABSTRACT This paper seeks to explore the heterogeneous effects of corporate social responsibility (CSR) practices on the service productivity and profitability of tourism firms, applying the perspectives of stakeholder theory and the resource-based view. We employ data envelopment analysis to gauge service productivity and to conduct an analysis of inefficiencies and benchmarks for underperforming firms. Additionally, we employ a two-way fixed-effects regression model using unbalanced panel data to discern the heterogeneous effects of CSR practices on firm performance. Our findings indicate that internal CSR practices (involving managers and employees) are positively correlated with both service productivity and profitability. Conversely, external CSR practices (involving suppliers, customers, environmental and societal factors) exhibit a negative impact on profitability but do not significantly affect service productivity. Further analysis reveals that service productivity and profitability are less likely to be the primary drivers of CSR practices, mitigating concerns regarding a potential bidirectional relationship.

Digital economy, green technology innovation, and productivity improvement of energy enterprises.

This study aims to address the important question of whether the digital economy can be deeply integrated with the energy sector to break through the resource and environmental constraints and thus enhance the productivity of energy companies. Using a sample of Chinese energy-listed companies, we comprehensively investigate the impact of the digital economy on the productivity of energy firms using the OLS method, mediated effects model, instrumental variables method, and difference-in-differences model. Research shows that the development of digital economy can significantly improve the productivity of energy enterprises. This effect is more obvious in eastern cities, non-resource-based cities, state-owned enterprises, and enterprises with high cash holdings. Green technological innovation in alternative energy production, transportation, and administrative supervision and design is an important channel for improving productivity in the digital economy. Internet development and digital inclusive finance can also improve the productivity of energy enterprises. "National Big Data Pilot Zone" and "Broadband China" pilot cities can play a policy role in improving the productivity of energy enterprises. The findings provide important insights for promoting the integration of the digital revolution with the energy technology revolution and accelerating the green development and digital transformation of the energy sector.

The Effect of Maximum Residue Limits on Agri-Food Trade: Evidence from Chinese Exports to the EU

There is debate about whether maximum residue limits (MRLs) for pesticides act as a catalyst or barrier to trade. By constructing a trade model based on heterogeneous firm quality and productivity, we show that MRLs’ net effects on total export value, the number of exporting firms, and the average export value per firm depend on the interplay between the effect on import demand and that on variable and fixed compliance costs. We employ firm-level transaction data for agri-food products exported from China to the European Union (EU). We use heterogeneity indices that combine the number and level of MRLs to measure MRL stringency between China and the EU; a Poisson pseudo-maximum-likelihood estimator with fixed effects is used for estimation. We find that stricter MRLs, whether imposed by China or the EU, promote China’s agri-food exports to the EU. However, such promotion effects are heterogeneous across agri-food-exporting firms. In China, updates to MRL standards improve agri-food-exporting firms’ ability to comply with stricter MRLs. Public investment and services help reduce compliance costs. Our findings provide new evidence that MRLs are not new non-tariff measures adopted to replace reduced import tariffs.

Financing the Gig Economy

ABSTRACTUnlike traditional firm production, gig economy workers provide their own physical capital. As a consequence, the low‐income households for whom gig economy opportunities are most valuable often borrow to participate. In the context of ride share, difference‐in‐difference analysis reveals increased vehicle purchases, borrowing, utilization, and employment around entry, but financially constrained individuals cannot participate. To assess the equilibrium importance of financing, I build and estimate a structural model of the gig economy. Access to finance proves critical for the gig economy's growth: without finance, equilibrium quantities would be 40% lower and prices 90% higher, and only higher‐income households could participate as drivers.

Understanding total factor productivity changes of Chinese N-fertilizer firms during raw material supply disruptions: a capacity utilization perspective

ABSTRACT Limiting fossil fuel usage is seen as essential to combat climate change; however, nitrogen fertilizers (or N-fertilizers) heavily rely on fossil fuels. Disruptions in fossil fuel supply are likely to negatively impact N-fertilizer production, worsening food crises and poverty in underdeveloped regions. In this study, we revisit the Coal Resource Consolidation Campaign (CRCC), an industrial reform campaign that aimed at increasing the mechanization and recovery rates to enhance the Chinese coal industry’s competitiveness but resulted in a shortage of anthracite lump coal supply, the primary feedstock for Chinese N-fertilizer firms at that time. We examine CRCC’s impact on the total factor productivity (TFP) of Chinese coal-based N-fertilizer firms during 2008–2013 using a difference-in-differences model. TFP is decomposed into capacity utilization (CU) and pure TFP. Our findings indicate a significant 33.4–34.2% decline in TFP due to CRCC. Further analysis reveals that a 6.3% decline in CU, not pure TFP, was the primary driver of the TFP loss from 2011 to 2013. We recommend that policymakers should assess the impact of climate change policies comprehensively, and the government should support the adaptation and innovation of feedstock in the N-fertilizer industry to avoid feedstock supply disruptions.

Investigation of the Diversity of Organizational Human Resources

Thanks to globalization, the workforce has often been filled with the ranks of people coming from different ethnic, religious, and gender-focused backgrounds. As such, it becomes almost imperative for companies today to make sure that their own ranks are reflective of this demographic change, not simply for the sake of diversity, but because diversity itself has, based on data, yielded greater productivity in firms. This study takes a closer look at academic resources on the topic and argues that workforce performance improves when employees come from different backgrounds due to different HR policies.

Unraveling the dynamics of R&D and firm productivity: Empirical insights from 27 Chinese industries with regional and ownership differences

This study examines R&D input and productivity dynamics in the context of the "Made in China 2025" initiative in China. Analyzing over 4000 enterprises across 27 industries from 2016 to 2019, it uncovers regional and ownership-based variations in productivity and R&D levels. The study highlights the link between R&D efficiency and innovation and identifies negative relationships between productivity persistence, R&D efficiency, and uncertainty. Additionally, it explores the impact of subsidies and R&D variations in achieving the goals of the "Made in China 2025" plan. These insights are valuable for policymakers seeking to enhance competitiveness in China's evolving business landscape.

Allocative Efficiency between and within the Formal and Informal Manufacturing Sectors in Zimbabwe

Abstract Resource misallocation has the potential to reduce aggregate total factor productivity and undermine industrial development. Aggregate productivity losses are found to be particularly pronounced in emerging economies where large market frictions impede efficient resource allocation. Available estimates, however, almost entirely exclude firms in the informal sector that in some countries, such as Zimbabwe, make up a high share of overall production and employment. The exclusion of informal firms can result in either an over- or under-estimate of the aggregate productivity losses from misallocation. This paper, therefore, uses firm-level survey data to analyze how market distortions contribute to the misallocation of resources within and between the formal and informal manufacturing sectors in Zimbabwe. Applying the approach developed by Hsieh and Klenow (2009) to firm-level microdata, the results reveal extensive resource misallocation in both the formal and informal manufacturing sector. Market shares of informal firms are found to be low relative to their productivity—an outcome associated with relatively large capital market distortions. Misallocation is also more pronounced among relatively productive firms, thus exacerbating aggregate losses in total factor productivity (TFP). Estimates indicate that aggregated gains in TFP of 151.4 percent can be realized through efficient resource allocation.

Correction: Participation of Less Productive Firms in Global Value Chains in Transition Economies: An Analysis of SOEs and Private Firms in Vietnam

Correction: Participation of Less Productive Firms in Global Value Chains in Transition Economies: An Analysis of SOEs and Private Firms in Vietnam

Product Innovation Among Furniture Firms: The Case of the Private Economy Area

Objective: The objective of this article is to analyze product innovation among furniture firms in the private economy area of Vietnam. Method: We designed a questionnaire related to product innovation among furniture firms in the private economy area. We determined the observed variables (scales) of product innovation among furniture firms based on previous studies and expert interview results. We use both qualitative and quantitative research methods, including descriptive statistics, reliability analysis through the Cronbach alpha coefficient, EFA analysis, the independent T test, and ANOVA analysis. Results: Four attributes of product innovation among furniture firms in the private economy area were quite high. All the attributes of the variables are statistically significant. There is no statistically significant difference in product innovation among furniture firms in the private economy area between these different genders and career seniorities. Conclusions: This research broadens the understanding of the importance of product innovation in the productivity and competitiveness of the furniture firms in the private economy area studied. This research has expanded product innovation among furniture firms in the private economy as an activity with profound business performance impacts. This study can be a basis for other research works and policy design oriented to achieve a comprehensive measurement of business performance and make business strategy in the firm.

Historical institution and corporate Innovation: Evidence from China’s Civil-service Examination

Previous research indicates that historical institutions are crucial to the functioning and development of an economy. However, little is known about whether and how a historical institution affects current entrepreneurial activities. In ancient China, the Civil-service Examination (CSE), also known as keju, was the most important institution for selecting scholar-officials and had long-lasting effects. Using the variation in the historical success in keju across prefectures, this paper empirically examines the impact of the CSE on local corporate innovation. We find that the density of jinshi, which is the highest achievement in keju, is positively correlated with the innovation productivity of local firms as measured by patent applications and citations. To determine causality, we employ an instrumental variable and a quasi-experiment in early Qing period. Further tests suggest that the CSE promotes corporate innovation by fostering a forward-looking stance in firms, enhancing firms’ human capital level, and increasing local social capital. Overall, our results indicate that the CSE has a real and long-lasting impact on today’s firm innovation.

Inclusive leadership and team climate: the role of team power distance and trust in leadership

PurposeThe purpose of this paper is to investigate the effect of inclusive leadership on team climate. Drawing on the social exchange theory (SET), this study proposes a theoretical model in which (1) inclusive leadership enhances team climate, (2) the moderating effect of team power distance and trust in leadership in the relationship between inclusive leadership and team climate.Design/methodology/approachA quantitative research method was applied, with a survey of 247 Nigerian employees nested in 59 teams in multiple small manufacturing firms across diverse industries widely distributed into textile, furniture, bakery and palm oil production firms. The partial least square structural equation modelling was used to test the study's proposed hypotheses.FindingsThe results revealed that inclusive leadership has a positive and direct effect on team climate. Also, this study found that (1) team power distance positively influences the relationship between inclusive leadership and team climate; and (2) trust in leadership positively influences the relationship between inclusive leadership and team climate.Research limitations/implicationsThis study affirms the explanatory power of SET to investigate inclusive leadership and team climate at the team level. Also, the study utilised the SET to confirm the significance and value of team power distance and trust in leadership in the relationship between inclusive leadership and team climate at the team level in the Nigerian context.Practical implicationsThe paper examined the relationship between inclusive leadership and team climate with team power distance and trust in leadership as moderators. The findings suggest that inclusive leadership play a paramount role in understanding team climate among small manufacturing firms. Moreover, the findings can be applied in organisations by creating different assessment mechanisms, e.g. webinars and training sessions, to encourage effective inclusive leadership behaviours in fostering a team climate for creativity and innovation.Originality/valueThe main contribution of this current research to knowledge is on the examination of the distinctive leadership style that influences team climate. The study indicates that when team members are allowed to fully contribute to the team, inclusion is promoted among group members, and trust in leadership is strengthened, which increases their perception of team climate within organisations.

Shhh… Do Gender-Diverse Boards Prioritize Product Market Concerns Over Capital Market Incentives?

We examine whether gender-diverse boards prioritize product market concerns over capital market incentives when proprietary costs are high. We argue that gender-diverse boards protect their firm’s competitive edge and maximize long-term shareholder wealth by ethically and carefully maintaining the confidentiality of proprietary information. Due to the reduced disclosure of proprietary information, firms with gender-diverse boards are likely to face more adverse selection when proprietary costs are high. However, the reduced disclosure of proprietary information enables firms with gender-diverse boards to enhance and maintain their competitive edge and gain higher long-term returns. Using a matched sample of the United States-listed companies, we find that firms with gender-diverse boards, relative to similar firms with all-male boards, (1) are associated with higher adverse selection costs and (2) higher long-run stock returns when the firm faces high product market competition. Collectively, our results suggest that firms with gender-diverse boards, which initially experience higher adverse selection in a competitive environment, are rewarded with a net gain of about 10 percent of their stock price in three years. Our research contributes to the literature by highlighting the importance of board gender diversity in fostering the ethical redaction of proprietary information for proprietary cost-based motives as opposed to agency cost-based motives. Our findings have important implications for regulators, firms, and shareholders by identifying gender-diverse boards as an antecedent for the ethical redaction of proprietary information.

Estimation of endogenous firm productivity without instruments: an application to foreign investment

Estimation of endogenous firm productivity without instruments: an application to foreign investment

The effect of environmental centralisation on productivity: Evidence from an administrative reform in China

AbstractThis paper adopts a novel institutional perspective—environmental centralisation—to examine its impact on firm productivity in developing countries. In 2008, China's State Environmental Protection Administration was upgraded to the Ministry of Environmental Protection (MEP). This administrative reform strengthened the central government's ability to protect the environment, enabling it to address more environmental affairs and concentrate on environmental rights. Based on the quasi‐natural experiment of the establishment of the MEP, this study takes a new perspective on the impact of environmental centralisation on productivity. The difference‐in‐difference‐in‐difference approach is used for the first time to estimate the impact of environmental centralisation on productivity. We find that environmental centralisation caused by the establishment of the MEP significantly increased the productivity of heavily polluting companies, and a series of robustness tests confirm that the results are credible. We identify three possible mechanisms, namely, facilitating innovation, curbing rent‐seeking behaviour and inhibiting over‐investments. The policy implication of this study is that the effectiveness of environmental policy depends not only on the policy itself but also on the allocation of environmental rights among different levels of government.

Reallocation and productivity in resource-rich economies

I study the firm-level dynamic response of a commodity-exporting economy to global cycles in commodity prices. I propose a heterogeneous-firms model endogenizing manufacturing productivity slowdowns through reallocation towards less productive firms. Within a given sector, commodity booms reallocate market share away from exporters because of exchange rate appreciation and away from capital-intensive firms because of the increase in the required rate of return to capital. Using microdata for Chile, the largest copper producer worldwide, I provide empirical evidence for these channels. When fed with the commodity super-cycle of 2004–2012, the calibrated model generates between 13% to 32% of the observed productivity slowdown.