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Technical Inefficiency and Firm Behavior a Panel Study of Small and Medium Japanese Manufacturing Firms

21 Pages Posted: 30 Aug 2022 Publication Status: Published

See all articles by Kazuo Ogawa

Kazuo Ogawa

Osaka University - Institute of Social and Economic Research (ISER)

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Abstract

This study examines the technical inefficiency of small and medium Japanese manufacturing firms by using panel data from the Basic Survey on Small and Medium Enterprises (2009-2018). We estimate the stochastic frontier production function with four production factors (regular workers, non-regular workers, capital stock and materials) and calculate the technical inefficiency of individual firms by applying a true random effects model that can distinguish technical inefficiency from firm heterogeneity. We find that inefficient firms are smaller, rely more on non-regular workers, exhibit poorer firm performance, have a higher debt-asset ratio, pay a lower interest rate and are inactive in capital investment and R&D investment. We also find that inactive capital investment and a high debt-asset ratio are mainly responsible for causing technical inefficiency.

Keywords: technical inefficiency, stochastic frontier model, true random effects model, investment, debt-asset ratio, nonregular workers

Suggested Citation

Ogawa, Kazuo, Technical Inefficiency and Firm Behavior a Panel Study of Small and Medium Japanese Manufacturing Firms. Available at SSRN: https://ssrn.com/abstract=4204907 or http://dx.doi.org/10.2139/ssrn.4204907

Kazuo Ogawa (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

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Japan
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