New Economics Papers
on Efficiency and Productivity
Issue of 2009‒11‒14
sixteen papers chosen by

  1. The effect of board size and composition on bank efficiency By Agoraki, Maria-Eleni; Delis, Manthos D; Staikouras, Panagiotis
  2. Technical Change and Total Factor Productivity Growth for Swedish Manufacturing and Service Industries By Dong-hyun Oh; Almas Heshmati; Hans Loof
  3. A Sequential Malmquist-Luenberger Productivity Index By Donghyun Oh; Almas Heshmati
  4. The Icelandic Economy: A victim of the financial crisis or simply inefficient? By Dong-hyun Oh; Hans Loof; Almas Heshmati
  5. Effects of fiscal decentralisation and electoral accountability efficiency evidence from the Italian health care sector By Francesco Porcelli
  6. Employer provided training in Austria: Productivity, wages and wage inequality By René Böheim; Nicole Schneeweis; Florian Wakolbinger
  7. Importing, Exporting and Productivity in Irish Manufacturing By Fergal McCann
  8. Japan and her dealings with offshoring: An empirical analysis with aggregate data By Agnese, Pablo
  9. Labor productivity: a comparative analysis of the European Union and United States, for the period 1994-2007 By Rafael Fernández; Enrique Palazuelos
  10. A General Framework to Evaluate Economic Efficiency with an Application to British SME By Jan Průša
  11. Cross-Country Differences in Productivity: The Role of Allocation and Selection By Eric J. Bartelsman; John C. Haltiwanger; Stefano Scarpetta
  12. Why Did Some Banks Perform Better during the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation By Beltratti, Andrea; Stulz, Rene M.
  13. The political economy of efficient public good provision: evidence from Flemish libraries using a generalised conditional efficiency framework By Kristof DE WITTE; Benny GEYS
  14. Accounting for exogenous influences in a benevolent performance evaluation of teachers By Kristof DE WITTE; Nicky ROGGE
  15. Do Investment Banks Have Skill? Performance Persistence of M&A Advisors By Bao, Jack; Edmans, Alex
  16. Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus By Delis, Manthos D; Tran , Kien; Tsionas, Efthymios

  1. By: Agoraki, Maria-Eleni; Delis, Manthos D; Staikouras, Panagiotis
    Abstract: This paper analyzes the relationship between board structure, in terms of board size and composition, and bank performance. Unlike previous studies, the present analysis is carried out within a stochastic frontier framework. To this end, bank performance is proxied by both cost and profit efficiency, measures that present considerable advantages over simple accounting ratios. The empirical framework formed is applied to a panel of large European banks operating during the period 2002-2006. We find that board size negatively affects banks’ cost and profit efficiency, while the impact of board composition on profit efficiency is non-linear. Finally, introducing risk-taking (credit risk) as an interaction component of board size and composition does not affect the robustness of the results.
    Keywords: Corporate governance; Board size and composition; Bank cost and profit efficiency; Stochastic frontier analysis
    JEL: C23 G34 K23 G21
    Date: 2009–10–08
  2. By: Dong-hyun Oh; Almas Heshmati; Hans Loof (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This paper presents alternative specifications of the production functions of a large panel of Swedish firms for the period 1992-2000. The period can be characterized as a transition when long-run productivity growth in the Swedish economy improved from being among the weakest to one of the strongest within the OECD. In order to present a detailed exploration of this dramatic change, the time trend and general index models are applied to estimate total factor productivity (TFP) growth, rate of technical change and returns to scale. The models are extended to allow for firm-specific as well as time-varying technical change. The parametric TFP measures are also compared with the non-parametric Solow residual, and several hypotheses are tested to explain the growth patterns in the Swedish economy. It is found that the improved growth rate, initially starting in large exporting manufacturing firms, after a deep economic crisis at the beginning of the 1990s, spilled over to the rest of the economy, both manufacturing and services.
    Keywords: Technical change, total factor productivity growth, manufacturing, service, enterprise panel data
    JEL: C23 C52 C67 D24 L25 L60 L80 O30
    Date: 2009–08
  3. By: Donghyun Oh; Almas Heshmati (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: This study proposes an alternative methodology for measuring environmentally sensitive productivity growth. The rationale of this methodology is to consider the features of technology appropriately by excluding a spurious technical regress based on the macroeconomic perspective. In order to consider this condition and to develop an alternative index, a directional distance function and the concept of the successive sequential production possibility set are combined. With this combination, the conventional Malmquist-Luenberger productivity index is modified to give the alternative sequential environmentally sensitive productivity index. This proposed index is employed in measuring productivity growth and its decomposed components of OECD countries for the period 1970-2003. We distinguish two main empirical findings. First, even though the components of the conventional Malmquist-Luenberger productivity index and the proposed index are different, the developments of productivity are similar. Second, unlike in previous studies, the efficiency change is the main contributor to the earlier study period, whereas the effect of technical change has prevailed over time.
    Keywords: efficiency change, environmentally sensitive productivity growth index, directional distance function, Malmquist-Luenberger productivity index, productivity,sequential production possibility set, technical change
    JEL: D24 D61 D57 C43 Q56
    Date: 2009–03
  4. By: Dong-hyun Oh; Hans Loof; Almas Heshmati (Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
    Abstract: Iceland, one of the smallest European economies, was hit severely by the 2008-financial crisis. This paper uses a firm-level Community Innovation Survey (CIS) data set to consider the economy in the period preceding the collapse of its financial system. We examine the linkage between the crisis and innovativeness from the perspective of technical efficiency by means of the Data Envelopment Analysis of 204 randomly selected firms. The results suggest that a substantial fraction of the Icelandic firms can be classified as non-efficient in their production process. The production scale of many manufacturing firms is too small to be considered technically efficient, while services firms typically use excessive resources in their production process. A remarkably weak performance in transforming R&D and labor efforts into successful innovations is observed. Based on the empirical results, suitable policy implications are suggested to remedy the inoptimal production structure and help economic recovery.
    Keywords: Technical efficiency, R&D, Innovation, Productivity, Manufacturing,Services, Iceland
    JEL: C67 D24 D57 L25 L60 L80
    Date: 2009–09
  5. By: Francesco Porcelli (University of Warwick)
    Abstract: Data envelopment analysis and panel data stochastic frontier models are used to evaluate the impact of the 1995 renewal of regional political institutions and the 1998 tax reform (introduction of IRAP) on the efficiency of Italian regional governments. Both methodologies are applied to a longitudinal dataset, including financial and health care data disaggregated at the regional level from 1991 to 2005. Then, efficiency scores for the regional governments are used to examine the evolution of technical efficiency in the Italian health care sector. The final results provide new empirical evidence in support of the findings of recent theoretical models concerning the way in which fiscal decentralization and electoral accountability affect the efficiency of governmental activity.
    Keywords: accountability, DEA, decentralisation, efficiency, health, IRAP, Italy, panel data, stochastic frontier
    JEL: H11 H51 H77 I11
    Date: 2009
  6. By: René Böheim; Nicole Schneeweis; Florian Wakolbinger
    Abstract: We use data on Austrian firms and employees to estimate the effects of employer-provided training on productivity, wages, and the inequality of wages within firms. While the average amount spent on employer-provided training is low in general, we find a robust positive elasticity of training on productivity of about 0.04. In-house training is more effective than external courses, and language, administrative and personal skills courses are more effective than sales training and IT-courses. We find a significant relationship between training and wages, the coefficient is about 0.05. We find no significant effect of training on the inequality of wages within firms.
    Keywords: employer-provided training, productivity, wages
    JEL: D21 J24
    Date: 2009–10
  7. By: Fergal McCann (University College Dublin)
    Abstract: The impact of international trade on firm productivity is tested by accounting for firms' import as well as export status for a large panel of Irish manufacturing firms. Two-way traders and exporters-only are found to be the most productive firms, with a significant gap between them and importers-only and non-traders. tfp is calculated using a modified version of the Olley and Pakes (1996) estimator, taking account of a four-category trade status. Selection of the most productive firms into exporting or importing is not found in any robust sense. Fixed effects, as well as Propensity Score Matching with Difference in Differences, are used to calculate productivity improvements from entering into international trade. These improvements are found to be highly contingent on export status, with import status being unimportant. The key finding of the paper is that the gains from trade, for Ireland at least, appear to lie on the export side. Interestingly, quitting trade leads to a mirror image effect to that of entry for all trade statuses.
    Keywords: Trade orientation, heterogeneous firms, productivity
    Date: 2009–11–01
  8. By: Agnese, Pablo (IESE Business School)
    Abstract: First moves towards a real understanding of the offshoring phenomenon date back only to very recent times, with employment and productivity effects occupying much of the literature around the subject. In particular for Japan, the studies conducted so far focus on the disaggregate level and put the stress on the productivity side alone. Here I analyze both the employment and the productivity effects at the aggregate industry level, covering the years 1980-2005. Moreover, I consider all industries within the economy and take account of both materials and services offshoring. The results presented here suggest that we should expect a positive effect of services offshoring on employment, and a positive effect of materials offshoring on the growth rate of productivity.
    Keywords: offshoring; employment; productivity;
    JEL: F16 J23 O47
    Date: 2009–07–03
  9. By: Rafael Fernández; Enrique Palazuelos
    Abstract: <p> This Working Ppaer confirms that labor productivity in the European economies has continued to slow down in recent years. U.S. productivity growth has been higher than in the EU, but only since 2001. At the same time, both economies have modified previous employment performance: EU employment growth is now higher than in U.S. This article proposes that productivity growth be explained by demand dynamics, and investment in particular, not forgetting the influence of employment, along with other factors such as new technologies. </p>
    Keywords: Labor Productivity; Demand; Employment; Labor Markets; Economic Sectors
    JEL: E20 O43 O51 O52
    Date: 2009
  10. By: Jan Průša (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This article formalises the idea of money-metric production frontiers, which we propose as a general framework for nonparametric evaluation of economic efficiency. As we show in our methodological discussion, this improves the flexibility and economic interpretation of our model. The empirical part is the first attempt to test the existence of a size-efficiency relationship among small businesses in the United Kingdom. It is based on a unique panel both with respect to size — ranging from agriculture to services — and to the ten year time span. We employ statistically robust methods to estimate and analyse sectoral efficiency. Our analysis yields three main insights: (1) Average sectors are expected to be two to four times less efficient than those on the efficient frontier. Great dispersion of efficiency scores highlights the importance of dynamic out-of-equilibrium modelling. (2) There is no evidence of a general economy-wide size-efficiency relationship. (3) Economic efficiency remained constant over the past ten years.
    Keywords: Small and medium enterprises; economic efficiency; firm size; robust efficiency estimation
    JEL: D24 L25 L26
    Date: 2009–10
  11. By: Eric J. Bartelsman; John C. Haltiwanger; Stefano Scarpetta
    Abstract: This paper combines different strands of the productivity literature to investigate the effect of idiosyncratic (firm-level) policy distortions on aggregate outcomes. On the one hand, a growing body of empirical research has been relating cross-country differences in key economic outcomes, such as productivity or output per capita, to differences in policies and institutions that shape the business environment. On the other hand, a branch of empirical research has attempted to shed light on the determinants of productivity at the firm level and the evolution of the distribution of productivity across firms within each industry. In this paper, we exploit a rich source of data with harmonized statistics on firm level variation within industries for a number of countries. Our key empirical finding is that there is substantial variation in the within-industry covariance between size and productivity across countries, but this covariance varies significantly across countries and is affected by the presence of idiosyncratic distortions. We develop a model in which heterogeneous firms face adjustment frictions (overhead labor and quasi-fixed capital) and idiosyncratic distortions. We show that the model can be readily calibrated to match the observed cross-country patterns of the within-industry covariance between productivity and size and thus help to explain the observed differences in aggregate performance.
    JEL: L11 L16 L2 L25 O4 O57
    Date: 2009–11
  12. By: Beltratti, Andrea (Bocconi University); Stulz, Rene M. (Ohio State University and ECGI)
    Abstract: Though overall bank performance from July 2007 to December 2008 was the worst since at least the Great Depression, there is significant variation in the cross-section of stock returns of large banks across the world during that period. We use this variation to evaluate the importance of factors that have been discussed as having contributed to the poor performance of banks during the credit crisis. More specifically, we investigate whether bank performance is related to bank-level governance, country-level governance, country-level regulation, and bank balance sheet and profitability characteristics before the crisis. Banks that the market favored in 2006 had especially poor returns during the crisis. Using conventional indicators of good governance, banks with more shareholder-friendly boards performed worse during the crisis. Banks in countries with stricter capital requirement regulations and with more independent supervisors performed better. Though banks in countries with more powerful supervisors had worse stock returns, we provide some evidence that this may be because these supervisors required banks to raise more capital during the crisis and that doing so was costly for shareholders. Large banks with more Tier 1 capital and more deposit financing at the end of 2006 had significantly higher returns during the crisis. After accounting for country fixed effects, banks with more loans and more liquid assets performed better during the month following the Lehman bankruptcy, and so did banks from countries with stronger capital supervision and more restrictions on bank activities.
    Date: 2009–07
  13. By: Kristof DE WITTE; Benny GEYS
    Abstract: Provision of most public goods (e.g., health care, library services, education, utilities) can be characterised by a two-stage ‘production’ process. The first stage translates basic inputs (e.g., labour and capital) into service potential (e.g., opening hours), while the second stage describes how these programmatic inputs are transformed into observed outputs (e.g., school outcomes, library circulation). While the latter stage is best analysed in a supply-demand framework, particularly in the former stage one would like to have efficient public production. Hence, unlike previous work on public sector efficiency (which often conflates both ‘production’ stages), this paper analyses how political economy factors shape efficient public good provision in stage one (using local public libraries as our centre of attention). To do so, we use a specially tailored, fully non-parametric efficiency model. The model is rooted in popular Data Envelopment Analysis models, but allows for both outlying observations and heterogeneity (i.e., a conditional efficiency model). Using an exceptionally rich dataset comprising all 290 Flemish public libraries, our findings suggest that the ideological stance of the local government, the wealth and density of the local population and the source of library funding (i.e., local funding versus intergovernmental transfers) are crucial determinants of library efficiency.
    Keywords: Nonparametric estimation, Conditional efficiency, Political economy, Public good provision, Libraries.
    JEL: C14 C61 I21
    Date: 2009–06
  14. By: Kristof DE WITTE; Nicky ROGGE
    Abstract: Students’ evaluations of teacher performance (SETs) are increasingly used by universities and colleges for teaching improvement and decision making (e.g., promotion or tenure). However, SETs are highly controversial mainly due to two issues: (1) teachers value various aspects of excellent teaching differently, and, to be fair, (2) SETs should be determined solely by the teacher’s actual performance in the classroom, not by other influences (related to the teacher, the students or the course) which are not under his or her control. To account for these two issues, this paper constructs SETs using a specially tailored version of the popular non-parametric Data Envelopment Analysis (DEA) approach. In particular, in a so-called ‘Benefit of the doubt’ model we account for different values and interpretations that teachers attach to ‘good teaching’. Within this model, we reduce the impact of measurement errors and a-typical observations, and account explicitly for heterogeneous background characteristics arising from teacher, student and course characteristics. To show the potentiality of the method, we examine teacher performance for the Hogeschool Universiteit Brussel (located in Belgium). Our findings suggest that heterogeneous background characteristics play an important role in teacher performance.
    Keywords: Teacher performance, Data envelopment analysis, Conditional efficiency, Education.
    JEL: C14 C25 I21
    Date: 2009–07
  15. By: Bao, Jack (Ohio State University); Edmans, Alex (University of Pennsylvania)
    Abstract: We document significant persistence in the average announcement returns to acquisitions advised by an investment bank. Advisors in the top quintile of returns over the past two years outperform the bottom quintile by 1.04% over the next two years, compared to a full-sample average return of 0.72%. Persistence continues to hold after controlling for the component of returns attributable to the acquirer. These results suggest that advisors possess skill, and contrast earlier studies which use bank reputation and market share to measure advisor quality and find no link with returns. Our findings thus advocate a new measure of advisor quality--past performance. However, acquirers instead select banks based on market share, even though it is negatively associated with future performance. The publication of league tables based on value creation, rather than market share, may improve both clients' selection decisions and advisors' incentives to turn away bad deals.
    JEL: G24 G34
    Date: 2009–07
  16. By: Delis, Manthos D; Tran , Kien; Tsionas, Efthymios
    Abstract: By examining the impact of capital regulation on bank risk-taking using a local estimation technique, we are able to quantify the heterogeneous response of banks towards this type of regulation in banking sectors of western-type economies. Subsequently, using this information on the bank-level responses to capital regulation, we examine the sources of heterogeneity. The findings suggest that the impact of capital regulation on bank risk is very heterogeneous across banks and the sources of this heterogeneity can be traced into both bank and industry characteristics, as well as into the macroeconomic conditions. Therefore, the present analysis has important implications on the way bank regulation is conducted, as it suggests that common capital regulatory umbrellas may not be sufficient to promote financial stability. On the basis of our findings, we contend that Basel guidelines may have to be reoriented towards more flexible, country-specific policy proposals that focus on the restraint of excess risk-taking by banks.
    Keywords: Capital regulation; risk-taking of banks; local generalized method of moments
    JEL: C14 G38 G32 C33 G21
    Date: 2009–11–10

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