Costly external finance,reallocation, and aggregate productivity

Empirical studies document that resource reallocation across production units plays an important role in accounting for aggregate productivity growth in the US manufacturing. Financial market frictions could distort the reallocation process and hence may hinder aggregate productivity growth. This paper studies the quantitative impact of costly external finance on aggregate productivity through resource reallocation across firms with idiosyncratic productivity shocks. A partial equilibrium model calibrated to the US manufacturing data shows that costly external finance causes inefficient output reallocation from high productivity firms to low productivity firms and as a result leads to a 1 percent loss in aggregate TFP.     

IT Outsourcing—A Source of Innovation? Microeconometric Evidence for Germany

Does IT outsourcing really influence firms' process innovativeness? We investigate this question with a distinguished view on manufacturing and service sectors. Previous studies suggest firms sourcing out IT services to external service providers are generally more process innovative. Based on a firm‐level data set comprising 1452 firms from the German manufacturing and services sectors, the econometric analysis confirms a positive and significant relationship between IT outsourcing and process innovation activity on an aggregate level. As proposed by our framework of differences between manufacturing and service firms, a more detailed analysis reveals that this positive relationship only holds for services firms. Copyright © 2016 John Wiley & Sons, Ltd.     

Sustainable product attributes and firm performance: The moderating role of marketing resource intensity

This paper aims to study the performance implications of sustainable product attributes (SPA) of US manufacturing firms. Specifically, it analyzes the influence of aggregate and disaggregated SPA on firm profitability. The study further explores the moderating influence of marketing resource intensity on aggregate and disaggregated SPA and firm profitability relationships. The fixed-effect regression analysis of 433 US manufacturing firms' panel dataset reveals that aggregate and disaggregated SPA positively influence the firm profitability. The moderation analysis also confirms the positive influence of marketing resource intensity on aggregate and disaggregated SPA and firm profitability relationship. The current paper contributes to the triple-bottom-line and theory-of-the-firm literature streams by empirically studying the influence of aggregate and disaggregated SPA on firm profitability. Furthermore, this study uses the resource-based view to complement theory-of-the-firm model of SPA and empirically study the moderating role of marketing resource intensity between aggregate and disaggregated SPA and firm profitability. Finally, the findings inform the managers of the increased firm profitability by aggregate and disaggregated SPA, and the pivotal role of marketing resource intensity in strengthening the positive influence of aggregate and disaggregated SPA on US manufacturing firms' profitability.     

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.     

Compositional change,aggregation, and dynamic factor demand. Estimates on a panel of manufacturing firms

Most empirical research on investment and dynamic factor demand has used aggregated data. The large number of authors who have cited this as a source of problems strongly suggests possible benefits from analyzing individual firm data. This paper presents an analysis of a panel dataset of US manufacturing firms. Several models, based on cost minimization and a three-factor Cobb–Douglas technology, are developed. The differences concern whether the technology varies across two-digit SIC industries, the presence of fixed adjustment lags, and the determinants of adjustment costs. Identification relies on the rational expectations hypothesis, and estimation on non-linear 3SLS. The estimates indicate that versions with the adjustment lag perform better than others. Conditional elasticities reveal that factor demand responds rapidly to anticipated changes in output and factor prices, a finding consistent with other recent work. It appears that the factor demand of large firms is more price sensitive and less sensitive to output than small firms, consistent with recent work on credit market imperfections. Comparison of the results based on the pooled and the industry varying technologies indicate that the use of aggregate data is indeed a source of problems.     

Tests of Representative Firm Models: Results for German Manufacturing Industries

Many studies of producer behavior consider cost and input demand functions derived from microeconomic theory and estimate them on the basis of aggregate data. If the characteristics of the firms differ, the negligence of heterogeneity can lead to estimation bias. An alternative is to restrict individual behavioral functions to being linear in the firm specific parameters. The aim of this paper is to describe aggregate producer behavior without placing too strong restrictions on functional form and to explicitly account for firm heterogeneity. Estimation for German manufacturing sectors confirms that neglected heterogeneity is an important source of bias in representative firm models.     

Firm turnover and productivity differentials in Ethiopian manufacturing

Are the forces of market selection at work in Africa? How successful are markets in these economies in sorting out firms on an efficiency basis following the sequence of reforms to liberalize and particularly to transform some of the previous command economies to market oriented ones? What is the pattern of entry and exit in the manufacturing sector and how does it affect industry productivity growth? This study examines these issues using firm-level industrial census data from the Ethiopian manufacturing sector. It is the first attempt to analyze firm turnover and productivity differentials using industrial census data in sub-Saharan Africa. The Ethiopian manufacturing sector exhibits a high firm turnover rate that declines with size. Exit is particularly high among new entrants; 60% exit within the first 3 years in business. Our study consistently shows a significant difference in productivity across different groups of firms, which is reflected in a turnover pattern where the less productive exit while firms with better productivity survive. We also found higher aggregate productivity growth over the sample period, mainly driven by firm turnover.     

Animal spirits as an engine of boom-busts and throttle of productivity growth

The news-shock literature interprets empirical news-shock identifications as signals about future productivity. Under this view, changes in productivity cause changes in expectations. I investigate an alternative interpretation whereby changes in expectations cause changes in productivity. I present a model where firms adopt the technology of a deterministic frontier, and where self-fulfilling expectational-shocks unleash a frenzy of adoption through which firms increase productivity. Consistent with the news evidence, stock prices and aggregate activity boom, yet TFP increases with a lag. Simulations using i.i.d. expectational-shocks yield moments consistent with the data, and qualitatively capture both high-frequency boom-busts and lower-frequency fluctuations. Finally, estimating a Beaudry–Portier style VECM on the simulated model output to identify a “news shock” recovers impulse response functions largely consistent with the Beaudry and Portier (2006) results.     

Aggregate productivity losses from factor misallocation across Chinese manufacturing firms

Aggregate productivity can be largely determined by how efficiently production factors are allocated across heterogeneous establishments. This paper estimates aggregate productivity losses from factor misallocation using a large sample of Chinese manufacturing firms. We analyze the institutional background and provide some stylized facts on factor misallocation of capital and labor in China. Using an approximation method based on the estimation of input gaps, we find that aggregate productivity losses reach an average rate of 11.18 percentage points per year. On average, capital and labor misallocation account for 6.73 and 4.45 percentage points, respectively. State ownership plays an important role in generating factor misallocation and productivity losses. Our results imply that factor misallocation have become a major obstacle preventing China from moving to a more efficient economy.     

Manufacturing strategy: Its assessment and practice

In recent years, the subject of manufacturing strategy has attracted much attention, yet it is still a relatively unresearched area. Among practitioners, unlike the term “marketing strategy,” the term “manufacturing strategy” does not have instant recognition as to its meaning, purpose, and utility.For continued progress in the research and practice of manufacturing strategy, there is a real need for practical methods of assessing the manufacturing strategy of businesses. For example, for practitioners, the assessment of manufacturing strategy is essential to the development, fine tuning, revision, and evaluation of manufacturing strategy.This study presents a method of assessing the manufacturing strategy of businesses. In the process of assessing the manufacturing strategy in thirty-five manufacturing firms, this study found several problems with the practice of manufacturing strategy and recommends some solutions.It has been reported by researchers that the task of assessing manufacturing strategy is often hampered by a lack of understanding of the term manufacturing strategy and the absence of explicitly denned manufacturing strategies within most manufacturing firms. Consequently, this study assessed the implied manufacturing strategy in the participating firms using the responses of both chief executives or equivalents and manufacturing managers. To overcome nonuniform understanding of the term among executives, multiple respondents and multiple methods using several direct and indirect questions were employed to get as good a fix on the manufacturing strategies of the firms as possible.It was found that while chief executives stressed quality, technology, etc., which would contribute to a business level strategy based on product differentiation, manufacturing managers stressed cost, and the keeping of delivery promises. This mismatch of emphasis between the two executives could be a sign of problems in the effective use of the manufacturing function.A major conclusion of this study is that executives in manufacturing firms are not sufficiently “literate” in matters concerning manufacturing strategy. However, this deficiency could be easily corrected by appropriate training in assessing, formulating, and implementing manufacturing strategy.The method used in this study for assessing manufacturing strategy could be used by chief executives and manufacturing managers to identify their implied manufacturing strategy, and to detect agreements as well as disagreements between the two. Further, the method used here could be replicated by executives in developing or reviewing the formal manufacturing strategies of their businesses.     

Exploring the financial consequences of the servitization of manufacturing

Commentators suggest that to survive in developed economies manufacturing firms have to move up the value chain, innovating and creating ever more sophisticated products and services, so they do not have to compete on the basis of cost. While this strategy is proving increasingly popular with policy makers and academics there is limited empirical evidence to explore the extent to which it is being adopted in practice. And if so, what the impact of this servitization of manufacturing might be. This paper seeks to fill a gap in the literature by presenting empirical evidence on the range and extent of servitization. Data are drawn from the OSIRIS database on 10,028 firms incorporated in 25 different countries. The paper presents an analysis of these data which suggests that: [i] manufacturing firms in developed economies are adopting a range of servitization strategies—12 separate approaches to servitization are identified; [ii] these 12 categories can be used to extend the traditional three options for servitization—product oriented Product–Service Systems, use oriented Product–Service Systems and result oriented Product–Service Systems, by adding two new categories “integration oriented Product–Service Systems” and “service oriented Product–Service Systems”; [iii] while the manufacturing firms that have servitized are larger than traditional manufacturing firms in terms of sales revenues, at the aggregate level they also generate lower profits as a % of sales; [iv] these findings are moderated by firm size (measured in terms of numbers of employees). In smaller firms servitization appears to pay off while in larger firms it proves more problematic; and [v] there are some hidden risks associated with servitization—the sample contains a greater proportion of bankrupt servitized firms than would be expected.

Turning green subsidies into sustainability: How green process innovation improves firms' green image

Green process innovation has been seen as a key strategy for manufacturing firms to pursue sustainable development. Yet, how to help manufacturing firms eliminate bottlenecks when implementing green process innovation remains poorly understood. To address this issue, the current study, which is anchored in the government incentive perspective, examines the drivers, contingent conditions, and consequences of green process innovation by using the panel data of manufacturing‐listed firms in China from 2013 to 2017. The results present valuable findings: (a) green subsidies are positively related to two dimensions of green process innovation, namely, cleaner production technology and end‐of‐pipe technology; (b) both cleaner production technology and end‐of‐pipe technology are positively related to firms' green image; (c) a firm's cleaner production technology mediates the relationship between green subsidies and its green image; and (d) higher absorptive capacity strengthens the indirect effect of green subsidies on a firm's green image via cleaner production technology. Our results provide meaningful theoretical and practical implications by revealing the benefits of green subsidies through green process innovation by leveraging levels of absorptive capacity.     

The impact of corporate governance on state-owned and non-state-owned firms efficiency in China

The purpose of this paper is to expand the literature on the corporate governance of transition economies by analyzing the relationship between corporate governance and productive efficiency in China's publicly listed manufacturing industry firms. We use the principal component analysis and the hybrid meta-frontier DEA model, separating inputs into radial inputs that change proportionally and non-radial inputs that change non-proportionally to measure the technical efficiency and technology gap ratios of publicly listed Chinese firms in different manufacturing industries during 2010–2013. The input variables are the net value of fixed assets, staff number, and the characteristics of the corporate governance system, while the output variables are gross revenue and total profit. The empirical result shows that inefficiency due to corporate governance is the main reason for lower efficiency in most manufacturing firms. For the technology gap ratio (TGR), the metal and mineral and the machinery, equipment and instrument are the two highest efficient sectors, whereas the paper and allied products sub-industry has the lowest efficiency during 2010–2013. In addition, the ratio of state-owned firms whose inefficiency is mainly caused by corporate governance to total state-owned firms is greater than that of non-state-owned firms in each year. The TGR analysis shows that the efficiency performance of non-state-owned firms is greater than state-owned firms.     

Planning processes for advanced manufacturing technology by large American manufacturers

In response to an increasingly competitive environment, many manufacturers have invested in advanced manufacturing technology (AMT). While many studies regarding the use of AMT have been performed, little is known about how firms plan and manage their AMT investments. This is surprising given the evidence about the impact such investments can have on an organization. To address this, a survey of large American manufacturing firms was conducted. Respondents were asked, among other questions, why their firms made such investments and the fit with their business strategy; which functional areas were involved in idea generation, the planning process, and proposal assessment; and what the anticipated risks, difficulties and benefits were from making such investments. The results from this survey are provided along with an analysis of the responses.     

Unlocking the potential of advanced manufacturing technologies

This research examines whether investments in advanced manufacturing technologies (AMTs) such as flexible manufacturing systems (FMS), computer aided design (CAD), computer aided manufacturing (CAM), robotics, etc., are more likely to lead to improved performance if they are supported by improvements in the manufacturing infrastructure of the company. This question is evaluated using data gathered from 202 manufacturing plants chosen from industries generally considered to have relatively high investments in technology.Multiple item scales are developed and adapted from sources in the literature to measure investments in technology, infrastructure, and the performance of the plant. Evidence supporting the reliability and validity of these scales is provided. Hierarchical regression is used to analyze the relationship between technology, infrastructure, and performance. The results suggest that there is an important interaction between the adoption of advanced manufacturing technologies and investments in infrastructure. Firms that invest in both AMTs and infrastructure perform better than firms which only invest in one or the other. Separate analyses on sub-samples of firms with the highest and lowest investments in AMTs show that infrastructural investments have a stronger relationship with performance in the high investment group. Thus, the data indicate that infrastructural investments provide a key to unlocking the potential of advanced manufacturing technologies.     

The impact of financial and economic conditions on aggregate merger activity

A model of aggregate merger activity is developed by integrating the literature on aggregate investment in fixed capital into a microfinance framework. Mergers are viewed as the result of firms capital budgeting processes, and two major categories of explanatory variables emerge: (1) cost of capital and related financial effects, and (2) output effects. Regressions, estimated to explain the number of large mining and manufacturing mergers over the sample period 1956–1978, provide evidence consistent with this view. In addition, the model explains the high level of merger activity during the conglomerate boom of 1967–9.     

Approaches to the factory of the future. An empirical taxonomy

An empirical analysis of the patterns in which companies invest in advanced manufacturing technologies (AMTs) such as computer-aided design, computer-aided manufacturing, and flexible manufacturing systems is presented. Data for this analysis are gathered from 202 manufacturing plants chosen from industries generally considered to have relatively high investments in technology.Three general types of AMTs are identified from the literature: design, manufacturing, and administrative. Multiple item scales are developed to measure each type of AMT. These scales are shown to be reliable instruments, and are used to develop an empirical taxonomy which validates existing conceptual typologies of AMTs. A cluster analysis reveals four distinct groups of companies with respect to their approaches toward investing in AMTs. TRADITIONALISTS do not invest heavily in any of the three types of AMTs. GENERALISTS have moderate investments in each technology type. HIGH INVESTORS have the highest investment in each of the three technology types. The most interesting group may well be the DESIGNERS, which have low investments for manufacturing and administrative AMTs, but have the second highest investment in design-related AMTs.An analysis of the four technology groups reveals that while plants do differ in terms of plant size and integration, they do not differ significantly in terms of industry membership or performance. This suggests that successful firms can be found in each of the groups and that good strategies may be found that are consistent with each of these approaches. Therefore, the taxonomy is fairly robust, and further research must analyze companies within these groupings in order to identify the contingencies or other factors that may act in conjunction with technology to separate high and low performing firms. The data from our study clearly suggest that investments in technology alone are not a causal factor for performance improvement.     

FOREIGN DIRECT INVESTMENT AND REGIONAL PRODUCTIVITY SPILLOVERS IN US MANUFACTURING

This research examines how inward foreign direct investment (FDI) impacts manufacturing productivity in select industries across US regions. Although some evidence has documented the phenomenon of knowledge spillovers to national economies, little is known about how the regional penetration of foreign investment affects the productivity performance of local firms. The analysis proceeds in a novel fashion by adjusting aggregate data on industry operating statistics to "net out" the contaminating influence of foreign firms producing in each of the host regional economies. A cross section of state-by-industry observations is used to estimate labor productivity, controlling for FDI penetration both by region and by industry. In general, the results demonstrate that domestic firms do not reap productivity gains as a result of a larger presence of foreign affiliates. Related research efforts, although not specifically concerned with the regional transmission of FDI spillovers, offer corroborative support for these findings.     

What inventories tell us about aggregate fluctuations—A tractable approach to (S,s) policies

We estimate a DSGE model with (S,s) inventory policies. We find that (i) taking inventories into account can significantly improve the empirical fit of DSGE models in matching the standard business-cycle moments (in addition to explaining inventory fluctuations); (ii) (S,s) inventory policies can significantly amplify aggregate output fluctuations, in contrast to the findings of the recent general-equilibrium inventory literature; and (iii) aggregate demand shocks become more important than technology shocks in explaining the business cycle once inventories are incorporated into the model. An independent contribution of our paper is that we develop a solution method for analytically solving (S,s) inventory policies in general equilibrium models with heterogeneous firms and a large aggregate state space, and we illustrate how standard log-linearization methods can be used to solve various versions of our inventory model, generate impulse response functions, and estimate the model׳s deep structural parameters.     

A model for outsourcing and governing of maintenance within the process industry

Many industrial firms motivate structural changes by an increased focus on core activities and reduced ownership of non-core activities. However, classifying maintenance activities as either core or non-core can be difficult, since maintenance is a support function strongly linked to the production core within a manufacturing firm. Based on a multiple case study that included four buying firms and four suppliers within the process industry, this paper investigates how the relative capabilities of the firms affect the governance decision about maintenance outsourcing. A conceptual framework built on a distinction between core-close and core-distant maintenance and between different maintenance capabilities is presented. The subsequent empirical analysis illustrates how the developed framework can be used for both analyzing and guiding firms’ decisions about outsourcing and governance regarding maintenance.