Determinants of Firm Level Technical Efficiency: Evidence Using Stochastic Frontier Approach

Type of Work

Article

Date

Spring 2008

Journal Title

Corporate Ownership and Control

Journal ISSN

1727-9232

Journal Volume

5

Journal Issue

3

First Page

225

Last Page

239

DOI

10.22495/cocv5i3c1p7

Abstract

By estimating stochastic frontiers we investigate the determinants and dynamics of firm efficiency. We use a representative sample of Estonian firms for the period 1993-1999 – and are able to address problems that plague much previous work, such as the endogeneity of ownership. Our main findings are that: (i) foreign ownership increases technical efficiency; (ii) firm size and higher labor quality enhance efficiency, while soft budget constraints adversely affect efficiency; (iv) Estonian firms operate under constants returns to scale; (v) the percentage of firms operating at high levels of efficiency increases over time. As such our findings provide support for hypotheses that a firm’s ownership structure and its characteristics such as firm size, labor quality, soft budget constraints and time of privatization are important for its technical efficiency.

Hamilton Areas of Study

Economics

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