Assessing the impact of domestic outsourcing and offshoring on productivity at the firm level

The purpose of this article is to investigate the effects of domestic and foreign sourcing on firm-level productivity. We develop a simple framework that permits the introduction of both domestic outsourcing and offshoring in a conventional production function. We find that the decision to outsource has a positive impact on the level of productivity as it permits the relocation of parts of the production process to external suppliers. Furthermore, there is a positive impact on output resulting from domestic outsourcing and offshoring like any other input.     

Investment climate and firm productivity: an application to Vietnamese manufacturing firms

The fundamental aspect of a national competitive advantage is a good investment climate. Understanding the role of the investment climate in generating firm productivity has received extensive attention by policymakers and economists in many countries. The article studies the effect of different dimensions of the investment climate on firm productivity. Using a large dataset of Vietnamese manufacturing firms, the article finds that deficiencies in the investment climate are prejudicial to firm productivity and competition. Furthermore, in examining the effect of corruption in association with the quality of the business environment, the study also investigates the possibility that corruption may compensate firms for a bad investment climate or at least may neutralize the negative impact of inefficient government regulations. In other words, corruption acts as ‘speed money’ to improve the efficacy of the provision of public services or provides leeway for entrepreneurs to bypass the inefficient regulations. This situation, however, is extremely harmful to the economy in the long run because it distorts the market and erodes the incentives for productive investments. Developing countries therefore need to put much more effort into institutional reforms, especially fighting corruption and efficiency in the provision of public goods and services.     

The business environment and Moroccan firm productivity

The paper focuses on the role of the business environment in understanding differences in the total factor productivity of Moroccan firms. The business environment is captured by measures which include the investment climate in which firms operate, i.e. access to credit, regulatory and institutional environment and infrastructure. The evidence on the relationship between credit and productivity is strongly indicative of credit resources misallocation in Morocco. We also find that, heavier bureaucracy and differences in regulations appear to have a negative effect on firm productivity. This last result is particularly relevant for small firms, and/or those that do not export and/or those with no access to foreign capital.     

Effects of regulatory burden and corruption on firm performance: Evidence from Moldova

Firms in Moldova face a high level of regulatory burden, as proxied by the number of inspections by public authorities. At the same time, they face high levels of corruption. We examine the effect of frequent inspections on four measures of firm performance: labour and total factor productivity, and levels of tangible and intangible assets. We also investigate how corruption affects the relationship between inspections and firm performance. We perform panel data analysis using firm-level administrative data and survey data from Moldova in 2005–2015. The results show that inspections and corruption each affect firm productivity negatively, but corruption moderates the negative effect of inspections. We also find that inspections and intangible assets are positively correlated, but this correlation is weaker for higher levels of corruption. Finally we examine whether these results differ by industry, firm size and ownership types. Inspections and corruption affect medium and large firms, and state-owned enterprises differently from micro and small firms and private firms respectively.     

R&D subsidies in a duopoly market with outsourcing to the rival firm

This paper investigates the effects of a public uniform R&D subsidy policy in a downstream duopoly market in which a nonintegrated firm, which faces a lower marginal cost, outsources inputs from its vertically integrated rival. The findings show that, in this market structure, such a policy has relevant effects largely differentiated between downstream competitors, as it can significantly modify the relative market shares and profitability of competing firms. Unlike the standard Cournot setting augmented with R&D, results show that the subsidy policy can have different (counterintuitive) effects on R&D investments, output, and profits of the vertically integrated producer and the vertically separated firm, which hold in both cases of exogenous and endogenous (optimal) subsidy. Our findings offer some testable implications and suggest that a subsidy policy in a market with outsourcing to a rival should also consider the different effects of this approach on competitors.     

Introduction to the special issue on firm performance and worker heterogeneity using Chinese Employer-Employee Survey (CEES) dataset

ABSTRACT

The Chinese Employer-Employee Survey (CEES) is the first dataset that links firm performance with worker heterogeneity in China, and therefore is a precious data resource for various research topics. This note introduces the CEES dataset, as well as seven papers that serve as the initial step in applying the CEES dataset. The topics covered include interaction between firm-level behavior and worker-level features, for example, firm innovation, quality upgrading, government intervention, worker’s cognitive and non-cognitive abilities, and labor protection. The ample information documented by CEES dataset is worth exploring in the future research agenda.     

Entrepreneurial overconfidence and firm survival: an analysis using the Kauffman firm survey

We used the Kauffman Firm Survey of ventures founded in the year 2004 to identify overconfident (OC) entrepreneurs and found, contrary to the existing literature, that the hazard ratio for these entrepreneurs was lower than the corresponding value for their non-OC peers. We categorized an entrepreneur as OC if he or she believed that his or her firm enjoys a competitive advantage over its industry peers, while simultaneously underperforming relative to the industry in terms of average initial ROA. Specifically, we looked at the average ROA during the years 2004–2007 and compared it to the industry median. In addition to our hazard findings, we discovered that these OC entrepreneurs, while starting with lower initial ROA levels relative to their industry peers, may have enjoyed slightly better movement in ROA over the intervening years. Our results are explained in the context of the psychological literature on optimism.     

Swimming upstream throughout the turmoil: Evidence on firm growth during the great recession

Economic downturns significantly impact on industry and firm dynamics. During a slowdown, increased competitive pressure makes less efficient firms more likely to exit (the cleansing hypothesis). However, evidence on Italian manufacturing firms during the Great Recession contrasts with this view. In fact, a not negligible subset of firms grew considerably during the crisis, increasing intra-industry heterogeneity. In this paper, we study these swimming upstream firms (SUFs) and we obtain two results. First, SUFs exhibit a high capability accumulation profile (innovation, intangibles investments and internationalization). Second, the impact of endogenous capability accumulation does not vanish after controlling for exogenous factors.     

Exports,productivity and innovation: new firm level empirical evidence

This article examines the determinants of Portuguese exports, applying data from 277 manufacturing firms for the period 2006–2010. In 2010, these firms accounted for about 47% of total Portugal’s exports. Both the static and dynamic results of the estimated models confirm the positive influence of productivity on variations in exports. The dynamic estimations also suggest that exports in the previous period hold a positive effect on contemporaneous exports, confirming the Roberts and Tybout (1997) sunk cost hypothesis for exports. In the dynamic analysis, the labour costs and the size of the firm do not have a statistically significant effect on Portuguese exports with the findings also pointing to increased expenditure on research and development (R&D) generating no statistically significant effect on exports. The lagged R&D expenditure was also insignificant in explaining the change of Portuguese exports. Thus, these results suggest that applying a product or process innovation measure returns better results than indirect measures such as R&D expenditure.     

Board size,corporate regulations and firm valuation in an emerging market: a simultaneous equation approach

We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by an urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role more than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards more than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.     

Employment growth and innovation at the firm level

We analyze the influence of innovation on growth rates of employment in 859 Dutch manufacturing firms over the period 1983–1988. Whereas the (growth of the) R&D intensity of firms has a slightly negative impact on employment, we find that firms with a high share of product-related R&D (as a proxi of R&D related to industrial activities in an early stage of the life cycle) experienced an above average growth of employment. The same holds for firms which directed their R&D towards information technology. Smaller firms have, ceteris paribus, substantially higher growth rates of employment than their larger counterparts. Against our expectations, R&D cooperation has no significant impact on employment growth. The same holds for activities in the fields of biotechnology and new materials.     

Product innovation and employment growth at the firm level: a quantile regression approach to inter-industry differences

This article demonstrates that the relationship between product innovativeness and employment growth at the firm level depends on (i) market responses to innovations with different degrees of novelty, (ii) the location of firms on the growth distribution and (iii) industry conditions. As a result, research that uses standard regression techniques such as OLS and does not account for innovation characteristics and industry differences fail to properly describe this relationship     

How knowledge flow affects Korean ICT manufacturing firm performance: a focus on open innovation strategy

The paper presents an integrated viewpoint of technological innovation strategy by considering both the firm and industry levels. Further, we provide a new open innovation framework by adopting a knowledge flow perspective using patent citation information. Finally, we consider a firm’s outbound open innovation performance using cites per patent information together with financial performance to look at both the practical and the potential effects of technological innovation strategy. Through these analyses, this study examines determinants of open technology innovation activity in the information and communication technology manufacturing industry in Korea and draws managerial and policy implications for effective industry promotion and improvement of technology innovation capability.     

Theories of the firm: contractual and competence perspectives

The article compares alternative approaches to the theory of the firm. The two main approaches confronted are the contractual (Coasian) perspective and the competence (evolutionary) perspective. Whereas the firm as a repository of tacit knowledge is neglected in the contractual perspectives, it occupies center stage in the competence perspective. It is argued that the competence perspective is not only applicable an understanding of the sources of firms' competitive advantage, but may also be applied to the issues of the existence and the boundaries of the firm. This means that a distinct theory of the firm can be constructed on the basis of evolutionary theory.     

Investigating productivity change and hospital size: a nonparametric frontier approach

The study obtains measures of the productive efficiency of ‘larger’ and ‘smaller’ Northern Ireland hospitals during the 1986–92 pre-Trust period. The measures provide insights into how these hospitals were responding to the pressures for increased efficiency prior to Trust status. They also constitute a useful benchmark for evaluating productivity change under the post-1992 Trust status environment. A nonparametric frontier approach is used to measure productivity change and to decompose this into technical change (or shifts in the best practice frontier) and efficiency change (or change in how far a hospital is from the frontier). The latter change in efficiency is also decomposed into changes in scale efficiency, pure technical efficiency and input congestion. The findings indicate that smaller hospitals, starting from a less efficient base, achieved greater productivity gains than larger hospitals over 1986–92. For smaller hospitals, this was due to progressive shifts in the best practice frontier outweighing a substantial decline in efficiency. This decline was found to be due to a deterioration in scale efficiency over the period. The results overall support the current policy view that larger hospitals are more efficient than smaller hospitals in providing health care services.     

Intra-industry spillovers and innovation: An econometric analysis at the firm level

This paper studies spillover effects of innovation at the firm level and the comparability of generalized method of moments (GMM) estimators with maximum likelihood estimators of the earlier studies. Two sources of spillovers are identified, i.e. intra-industry R&D expenditure and intra-industry innovation output. This paper estimates a negative R&D spillover effect and a positive output spillover effect. Because of the substitution effect of intra-industry R&D spillovers, the elasticity of patent with respect to firm's own R&D expenditure is greater than those estimated in the earlier studies. With GMM, individual effects are incorporated into the models either by developing proxies for them or attempting to eliminate them.     

Imports and TFP at the firm level: the role of absorptive capacity

This paper estimates the effect of the decision to import intermediate goods and capital equipment on Total Factor Productivity (TFP) at the firm level on a panel of Spanish firms (1991–2002). We use two alternative approaches. In the first, we estimate TFP and apply a diff‐in‐diff estimator with a control group constructed by propensity‐score matching. In the second, direct method, we estimate TFP with imported inputs as a state variable in one stage. Both approaches show that the effect of a firm's decision to source intermediates and capital equipment abroad on its TFP depends critically on its capacity to absorb technology, measured by the proportion of skilled labour.     

Innovation and firm performance in Korea and China: a cross-context test of mainstream theories

We investigate the relationship between innovation and firm performance in two divergent emerging economy contexts: Korea and China. Mainstream innovation theories make disparate claims for how (1) intensity of innovation, (2) scope of innovation and (3) spillovers impact firm performance. Using a comparative institutionalist approach we hypothesise how these relationships apply to firms in Korea and China. Analysis of 897 firm–year data points over a 4-year period provides broad support for our hypotheses. Intensity of innovation (patent intensity) is a strong cross-contextual argument. Scope and spillover arguments appear to be more context-sensitive. Firms with innovation depth in specific technological fields enjoy better performance in Korea, while diversified innovation is more beneficial for firms in China. Spillovers have a stronger impact in Korea than China. The findings underline the importance of incorporating change in institutional context when developing policy and theory relating to firm innovation and performance in emerging economies.     

Patents and R&D at the firm level: A first report

The U.S. Patent Office has recently computerized its data base. Thus an easily accessible rather direct indicator of the inventive output of firms is now available. We examine the sense in which the patent measure is a ‘good’ indicator of inventive activity by relating it to the R&D expenditures of a cross-section of 121 firms over an 8 year period.     

A naturalistic approach to the theory of the firm: The role of cooperation and cultural evolution

One reason why firms exist, this paper argues, is because they are suitable organizations within which cooperative production systems based on human social predispositions can evolve. In addition, we show how an entrepreneur, given these predispositions, can shape human behavior within a firm. To illustrate these processes, we will present a model that depicts how the biased transmission of cultural contents via social learning processes within the firm influence employees’ behavior and the performance of the firm. These biases can be traced back to evolved social predispositions. Humans lived in tribal scale social systems based on significant amounts of intra- and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies arose. Firms rest upon the social psychology originally evolved for tribal life. We also relate our conclusions to empirical evidence on the performance and size of different kinds of organizations. Modern organizations have functions rather different from ancient tribes, leading to friction between our social predispositions and organization goals. Firms that manage to reduce this friction will tend to function better.