Determinants of Firm-level Technical Efficiency: Evidence Using Stochastic Frontier Approach

Evis Sinani, Derek C. Jones, Niels Mygind

    Research output: Working paperResearch

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    By estimating stochastic frontiers we investigate the determinants and dynamics of firm efficiency. We use a representative sample of Estonian firms for the period 1993-1999 – and are able to address problems that plague much previous work, such as the endogeneity of ownership. Our main findings are that: (i) foreign ownership increases technical efficiency; (ii) firm size and higher labor quality enhance efficiency, while soft budget constraints adversely affect efficiency; (iv) Estonian firms operate under constants returns to scale; (v) the percentage of firms operating at high levels of efficiency increases over time. As such our findings provide support for hypotheses that a firm’s ownership structure and its characteristics such as firm size, labor quality, soft budget constraints and time of privatization are important for its technical efficiency.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherDepartment of International Economics and Management, Copenhagen Business School
    Number of pages33
    Publication statusPublished - 2007
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School


    • Stochastic frontier
    • Technical efficiency
    • Soft budget constraints
    • Ownership structure

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