A Metafrontier Production Function for Estimation of Technical Efficiencies and Technology Gaps for Firms Operating Under Different Technologies

This paper presents a metafrontier production function model for firms in different groups having different technologies. The metafrontier model enables the calculation of comparable technical efficiencies for firms operating under different technologies. The model also enables the technology gaps to be estimated for firms under different technologies relative to the potential technology available to the industry as a whole. The metafrontier model is applied in the analysis of panel data on garment firms in five different regions of Indonesia, assuming that the regional stochastic frontier production function models have technical inefficiency effects with the time-varying structure proposed by Battese and Coelli (1992).     

The potential of group technology for U.S. manufacturing

Group Technology (GT) is an innovative approach to batch production which seeks to rationalize a variety of aspects of the conversion process by recognizing and exploiting the underlying sameness which exists among component parts, end items, raw materials and so forth. The majority of GT applications, however, focus on identifying and capitalizing on component part similarities. The central theme of GT when applied to this class of items is the formation of part families based on design or manufacturing similarities (or both).Although the basic principles of GT were described and applied overseas as early as 1950, it is only in the past ten years that any significant and sustained U.S. interest in GT has surfaced. In an effort, first, to determine the status of GT use in the U.S. and, second, to provide some insights as to the desirability of GT for U.S. manufacturers, data was collected on twenty U.S. firms known to use this innovation. A fifteen page questionnaire was employed to gather information on (1) the characteristics of these firms which use GT, (2) the ways in which GT has been applied at these companies and (3) the costs and benefits of these GT programs. The results of this survey, described below, provide an overview of GT practices in a sample of U.S. firms and indicate the potential usefulness of this innovation for a broad spectrum of U.S. manufacturers.The survey responses indicate that GT is a multifaceted tool which can be applied to a variety of problems in a variety of industrial settings. GT has been adopted by both large and small installations involved in the manufacture of metal items produced in small to medium quantity lots. Although no applications were identified outside metal working, the range of metalworking industries in which GT had been implemented is quite broad. Universally, GT was adopted in response to a particular problem or set of problems. Frequently, the need to curb excessive lead times motivated firms to introduce GT.In terms of implementing and using GT there were a number of interesting findings. First, the survey results confirm that GT is more than cellular manufacturing. In fact, the most popular application of GT was in manufacturing engineering, particularly as an aid in rationalizing the process planning function. Seventy-five percent of the firms had used GT in manufacturing engineering, while fifty-five percent had set up one or more production cells and an equal number had applied GT to product design. A second interesting finding was that, for the majority of firms, informal procedures for identifying and grouping similar items (i.e. by visual inspection or informed judgement) proved inadequate for pursuing GT applications. Consequently, eighty-five percent of the respondents noted that formal classification and coding schemes had been used to aid in identifying and exploiting item similarities. The survey also yielded interesting results with respect to the problems encountered in implementing GT. The firms reported that regardless of the type of application (i.e., product design, manufacturing engineering or cellular manufacturing), human resistance to change was the most serious impediment to successfully introducing GT. This obstacle could be surmounted, in most instances, by GT education and by involving those affected by GT as early in the implementation process as possible. A number of other problems specific to the type of GT application were also noted. With regard to the relative ease of implementing GT in various areas, the respondents generally agreed that establishing cells is fraught with more difficulties than are GT applications in manufacturing engineering or product design.With respect to costs and benefits, 85% of the firms reported that the actual benefits from GT met or exceeded their anticipated benefits. Specific savings frequently mentioned included reduced lead times and easier preparation of process plans. Costs for planning the GT program and for purchasing additional computer hardware and software were the most commonly cited GT-related expenses. In terms of prerequisites for success in implementing GT, the overwhelming majority of respondents agreed that two elements are essential. The first is GT education for all those (managers, supervisors and line personnel) who are affected by the changes that accompany GT's introduction. The second critical factor is top management's commitment to GT principles and support for the personnel involved in directing the GT efforts.Thus, to the extent that the firms included here are representative of a broader spectrum of U.S. manufacturers, one can conclude that in the presence of top management encouragement and a commitment to GT education, batch manufacturers involved in metalworking and facing any of a variety of problems could benefit from putting into practice GT principles.     

Simultaneous determination of inventories and accounts receivable

The study presents a model based on 3375 observations from industrial firms in Pakistan, and the three‐stage least square (3SLS) technique has been applied for the estimation. The results indicate that the economic order quantity (EOQ) of inventories is not a constant magnitude; it is a variable closely associated with ‘time trend’. While the ‘buffer stock’ element can be estimated through the constant term of an equation. Receivables from customers show a negative correlation with liquid assets and the cost of production. Receivables are also shown to act as substitute for closing inventories. Copyright © 2005 John Wiley & Sons, Ltd.     

Organisational modes for Open Innovation in the bio-pharmaceutical industry: An exploratory analysis

This paper investigates the adoption of Open Innovation in the bio-pharmaceutical industry, studying through which organisational modes it is put into practice and how these modes are interwoven with the different phases of drug discovery and development process. Two rounds of interviews with industry experts were carried out to develop a model describing the adoption of Open Innovation by bio-pharmaceutical companies. This framework was then applied to an extensive and longitudinal empirical basis, which includes data about the adoption of Open Innovation by the top 20 worldwide industry players, in the time period 2000-2007. The paper provides a thorough discussion of how bio-pharmaceutical firms have used different organisational modes (i.e. licensing agreements, non-equity alliance, purchase and supply of technical and scientific services) to enter into relationship with different types of partners (i.e. large pharmaceutical companies, product biotech firms, platform biotech firms and universities) with the aim to acquire (Inbound Open Innovation) or commercially exploit (Outbound Open Innovation) technologies and knowledge. The implications of the study for Open Innovation research and possible avenues for future investigation are discussed at length in the paper.     

Home market effects with endogenous costs of production

In a standard imperfect competition model, we endogenize the costs of production of firms in the increasing returns sector (IRS) via process R&D. We show that firms in the larger region in terms of demand invest more in R&D (i.e.: they are bigger in size and have lower marginal costs) than firms in the smaller region, since the former exploit larger economies of scale in production to pay for the costs of R&D. As a result, when the return on R&D is high, the larger region does not employ disproportionately more labor nor attracts a disproportionately larger share of firms in the IRS in relation to share of demand it hosts, i.e.: negative home market effects (HMEs) in employment and in the number of firms. When this occurs, only partial agglomeration of the IRS in the larger region is sustainable in equilibrium. Even so, the larger region always runs trade surplus in the IRS, i.e.: HME in trade patterns.     

Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms

This paper studies the structure of the adjustment costs for heterogeneous labour inputs, allowing for asymmetries and interaction effects among them. To do this, I estimate Euler equations for the demands of permanent nonproduction (white collar) and production (blue collar) employees using a sample of Spanish manufacturing firms. These equations are estimated using the subsample of observations for which adjustment is done, controlling for endogenous sample selection. The main results confirm the heterogeneity of adjustment costs for these two labour inputs, and the existence of cross-adjustment effects between them. Weak evidence of asymmetry in permanent nonproduction labour is also found.     

How Important is Foreign Direct Investment?

The degree of multinationality of an economy's production is determined by the extent of production in other economies by domestically-owned firms, and by production located in the economy in question by foreign-owned firms. In the absence of direct measures, international production (that is, production under foreign ownership) is normally measured at a national level by outward and inward foreign direct investment (FDI) stocks. Unfortunately, the existing practice of reporting FDI stocks on a historical cost basis (i.e. book values) is unsatisfactory, because it does not take into account the age distribution of stocks, thus making accurate international comparisons of FDI stocks almost impossible (see e.g. Cantwell, 1984, 1992; Bellak and Cantwell, 1996). We have re-estimated the FDI stocks of Japan, Germany, the US and the UK at replacement values using a perpetual inventory model (PIM). The results cast doubt on some of the conventional wisdoms about international production, derived from historic cost data.     

The duality of bankruptcy process in Finland

Standard bankruptcy prediction methods lead to models weighted by the types of failure firms included in the estimation sample. These kinds of weighted models may lead to severe classification errors when they are applied to such types of failing (and non-failing) firms which are in the minority in the estimation sample (frequency effect). The purpose of this study is to present a bankruptcy prediction method based on identifying two different failure types, i.e. the solidity and liquidity bankruptcy firms, to avoid the frequency effect. Both of the types are depicted by a theoretical gambler's ruin model of its own to yield an approximation of failure probability separately for both types. These models are applied to the data of randomly selected Finnish bankrupt and non-bankrupt firms. A logistic regression model based on a set of financial variables is used as a benchmark model. Empirical results show that the resulting heavily solidity-weighted logistic model may lead to severe errors in classifying non-bankrupt firms. The present approach will avoid these kinds of error by separately evaluating the probability of the solidity and liquidity bankruptcy; the firm is not classified bankrupt as long as neither of the probabilities exceeds the critical value. This leads the present prediction method slightly to outperform the logistic model in the overall classification accuracy.     

Environmental,Sustainable Behaviors and Innovation of Firms During the Financial Crisis

In this paper, we analyze the relation between sustainable and environmental behaviors and performance and innovation. Altogether, 1032 observations are divided into specific groups according to the Carbon Disclosure Project (CDP) Global 500 report and the Dow Jones Sustainability Index (DJSI) for 2008 and 2009. Based on legitimation theory and stakeholder theory, we regard the voluntary activities of firms as having long‐run effective characteristics that can be applied to industry in general. The environmental behavior of firms is represented by CDP activity, while the DJSI represents their sustainable activities. Based on the assumption that corporate environmentalism is a bilateral agreement between policymakers and firms, we answer four specific research questions. (i) What is the relation between voluntary activities and performance of firms? (ii) Do firms' voluntary activities in environmental and sustainable implementations induce innovation? (iii) How does the nature of innovation depend on voluntary type of the firms? (iv) What is the link between firm characteristics and innovation according to voluntary types? From the presented empirical analysis, we find positive relations between corporate environmentalism and innovative activities. We then classify environmental and sustainable issues and propose an empirical model of the links between environmental and sustainable behaviors and innovation activities. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.     

Firms,shareholders, and financial markets

We study the influence of the financial market on the decisions of firms in the real market. To that end, we present a model in which the shareholders’ portfolio selection of assets and the decisions of the publicly traded firms are integrated through the market process. Financial access alters the objective function of the firms, and the market interaction of shareholders substantially influences firms’ behavior in the real sector. After characterizing the unique equilibrium, we show that the financial sector integrates the preferences of all shareholders into the decisions for production and ownership structure. The participation from investors in the financial market also limits the firms’ ability to manipulate real prices, i.e., there is a loss of market power in the real sector. Note that, while the loss of market power changes expected profits, it is not detrimental to shareholders since the expected return of equity share depends on the variance (and not the mean) of profits. Indeed, any change in expected profits is absorbed by the financial price. We also show that financial access increases production, thereby altering the distribution of profits. In particular, financial access induces firms to take on more risk. Finally, financial access makes the relationship between risk-aversion and risk-taking ambiguous. For example, it is possible that an increase in risk-aversion leads to more risk-taking, i.e., the variance of real profits increases.     

Public support for performing arts. Efficiency and productivity gains in eleven European countries

This paper investigates the importance of public cultural expenditure for the efficiency and productivity of the performing arts (PA) firms. To this aim, we estimate a translog production function using the stochastic frontier approach (SFA), and we obtain the estimates of both technical efficiency and its determinants for the PA firms in EU-11 countries over the period 2009–2017. The large panel data set enables the application of robust true random-effects SFA techniques, which control for noise, unobserved firms' heterogeneity and endogeneity of the inputs. Moreover, by estimating a production function, the characteristics of the production technology in the PA sector is also derived. The empirical results demonstrate that PA firms are technically inefficient, implying that the investigated firms could increase their artistic output between 32 and 42% and that decreasing returns to scale are prevalent, due to the presence of too many micro and large-scale firms in the European PA sector. In contrast to the seminal Baumol and Bowen's [5] paper, we also demonstrate that the total factor productivity (TFP) increased in the EU PA firms over the examined period. Technical efficiency, although relatively low, was the main driver of this productivity growth, as opposed to scale efficiency change or technological change, which display very small or no increases. We also find that, contrary to the common wisdom on its negative effects on firm efficiency, public spending on culture increases the efficiency of PA firms. Within this context some policy implications are discussed.     

Outsourcing,delocalization and firm organization: Transaction costs versus industrial relations in a local production system of Emilia Romagna

This article investigates the firms’ decisions to outsource, taking into account the impact of their embeddedness in a specific regional context on the relative entrepreneurial decision. It focuses on the role of industrial relations, as a factor that could interfere with the entrepreneurs’ decision of resorting to market relationships in discovering and exploiting new business opportunities. We study a local production system in Emilia Romagna (Northern Italy), i.e. the province of Reggio Emilia (RE), whose firms are characterized by a district kind of environment and where entrepreneurship develops in the presence of ‘thick’ industrial relations. The empirical part of the study shows that the role of transaction costs in explaining the outsourcing is blurred, while industrial relations have a stronger explanatory power. Furthermore, it seems that RE firms generally use outsourcing and international delocalization in complementary ways; however, the correlation depends on the activity and the nature of the delocalization channel. Outsourcing strategies appear to be affected by the pattern of socio-economic development in the region where the firms are located. In particular, the entrepreneurial decision to externalize a part of the production process seems to be related to the specific participatory, formal and informal mechanisms involved in regional development.     

Environmental,social and governance initiatives and wealth creation for firms: An empirical examination

This study examines the effect of environmental, social, and governance (ESG) activities on firm performance of 4,887 global companies. Mean difference test shows that firms with a high level of ESG activities are different from their low-ESG counterparts. The two-stage least square results suggest that ESG activities on (a) the welfare for internal stakeholders and best corporate governance practices are beneficial for firm performance and (b) antitakeover mechanisms (pollution control) adopted by firms are negatively (positively) valued by market players. Overall, this is the first study to examine the effects of ESG on the market-based and accounting-based performance of global firms.     

Statistical Approaches for Non‐parametric Frontier Models: A Guided Tour

A rich theory of production and analysis of productive efficiency has developed since the pioneering work by Tjalling C. Koopmans and Gerard Debreu. Michael J. Farrell published the first empirical study, and it appeared in a statistical journal (Journal of the Royal Statistical Society), even though the article provided no statistical theory. The literature in econometrics, management sciences, operations research and mathematical statistics has since been enriched by hundreds of papers trying to develop or implement new tools for analysing productivity and efficiency of firms. Both parametric and non‐parametric approaches have been proposed. The mathematical challenge is to derive estimators of production, cost, revenue or profit frontiers, which represent, in the case of production frontiers, the optimal loci of combinations of inputs (like labour, energy and capital) and outputs (the products or services produced by the firms). Optimality is defined in terms of various economic considerations. Then the efficiency of a particular unit is measured by its distance to the estimated frontier. The statistical problem can be viewed as the problem of estimating the support of a multivariate random variable, subject to some shape constraints, in multiple dimensions. These techniques are applied in thousands of papers in the economic and business literature. This ‘guided tour’ reviews the development of various non‐parametric approaches since the early work of Farrell. Remaining challenges and open issues in this challenging arena are also described. © 2014 The Authors. International Statistical Review © 2014 International Statistical Institute     

Production functions and productivity of family firms: Evidence from the S&P 500

This paper examines whether the higher profitability and valuation of family firms is related to differences in production technologies and production efficiency. Using data on S&P 500 manufacturing firms, we find that family firms are more productive than comparable non-family firms. Furthermore, our results show that the production technologies of family and non-family firms do not differ per se, thereby suggesting that the differences in the level of production output are caused by higher production efficiency of family firms. These findings indicate that the superior performance of family firms is related to their more efficient use of labor and capital resources.     

Organic versus cosmetic efforts of the quality of carbon reporting by top New Zealand firms. Does market reward or penalise?

This study explores the quality of carbon reporting (QCR) by New Zealand (NZ) firms and its changes over time. It also explores the impact of QCR on the market reputation of firms. Using a sample of 300 company-year observations between 2015 and 2020 from top listed firms of NZ, the study develops a 14-item QCR index. The study finds that the company-level QCR reporting by NZ firms overall is not praiseworthy, as firms need to improve QCR in many aspects (both in-house efforts as well as external reporting). Although QCR has increased over time, firms' QCR efforts cannot be treated completely authentic. Majority of firms in NZ have disclosed unaudited carbon information to investors and other stakeholders. Additionally, our study finds that QCR positively affects the market reputations of firms, and the market behaves accordingly. Specifically, firms' organic carbon efforts are paid-off (through increased market reputation) by the market players and cosmetic/decoupled behaviour is penalised (through decreased market reputation). This study is the first on QCR reporting using a sample of NZ firms and an account of their initiatives towards the carbon emission reduction initiative and related disclosures. The study's findings have policy implications.     

ICT policies for SMEs and regional disparities. The Spanish case

The effective incorporation of Information and Communication Technologies (ICTs) in business is not something that takes place homogeneously or always with the same speed, particularly in the case of small and medium-sized firms (SMEs). Obviously, the adaptation process of these technologies by the firms affects, and at the same time is conditioned by, the economic dynamics of the regions. The European Union and the national and regional governments have designed programmes and policies oriented towards strengthening the effective development and application of the ICT in small and medium-sized firms. This paper deals with these subjects taking the Spanish case as a point of reference. First, significant data are presented to show the situation in different regions. Second, a more detailed analysis is made of the promotion policies applied in three regions taken as a case study. From this, certain conclusions are drawn and some critical comments are made.     

“双循环”新格局下我国跨国制造企业的供应链战略

文章主要研究"双循环"新格局下我国跨国制造企业的供应链战略。考虑当前国家发展战略,我国跨国制造企业全球供应链宜采取双供应链模式。通过对一些典型跨国企业的跨国战略及供应链模式进行分析,再基于已有的理论研究成果和风险共担原理,进一步提出双供应链的优化结构,即"星状"生产模型。"星状"生产模型是由中国本土生产基地和许多海外微型"速度工厂"组成。基于这种双供应链的跨国战略很好地权衡了全球化与响应性两种目标,既能够降低生产成本又可及时响应海外市场。     

Decomposing multifactor productivity in Italy from 1998 to 2004: evidence from large firms and SMEs using DEA

This paper presents a firm-level analysis of multifactor productivity (MFP) in Italy between 1998 and 2004. Using data envelopment analysis (DEA) technique, MFP change are measured for 31 industries and decomposed into efficiency change and technical change (which in turn is interpreted as the combined effect of technical progress and scale economies). The results highlight the stagnation in many Italian production activities and even a decrease in MFP in some industries. A non-parametric statistical test on the results obtained from DEA reveals that the analysed larger firms have been more likely to perform better in efficiency than the smaller ones. This outcome seems to complement the Schumpeterian view of a relatively high attitude of larger firms towards technological innovation and productivity growth.     

A micro-econometric analysis of the role of R&D spillovers using a nonlinear translog specification

This paper assesses the impact of Research and Development (R&D) spillovers on production for a panel of 1,203 Italian manufacturing firms over the period 1998–2003.The estimations are based on a nonlinear translog production function augmented by a measure of R&D spillovers which combines the geographical distance between firms, the technological similarity within each pair of firms and the technical efficiency of each firm. The estimation method takes into account the endogeneity of regressors and the potential sample selection issue regarding the decision by firms to invest in R&D. Results show that the translog production function is more suitable than the Cobb-Douglas for modelling firm behaviour and that returns to scale are increasing. Moreover, the internal and external stocks of technology exert a significant impact on firms’ production. Finally, it emerges that, for Italian manufacturing firms, R&D capital and R&D spillovers are highly substitutes.