Productivity efficiency and firm size: An empirical analysis of foreign owned companies

Abstract

There are various arguments about the impact of firm size on productivity growth. On one hand, it is claimed that large firms could be more efficient in production because they could use more specialized inputs, better coordinate their resources, etc. On the other hand, it is emphasized that small firms could be more efficient because they have flexible, non-hierarchical structures, and do not usually suffer from the so-called agency problem. This paper argues that size exerts an indirect effect on firms' productivity, as it conditions the impact of internal factors on productivity. By using different methodological approaches to assess the impact of different characteristics of foreign owned firms on productivity, this paper analyzes to what extend the heterogeneous pattern of productivity can be accounted for by the levels of those factors. (c) 2007 Elsevier Ltd. All rights reserved.