What Kinds of Company Have High Productivity? Company Characteristics and TFP

Author Name MORIKAWA Masayuki  (Senior Fellow, RIETI)
Creation Date/NO. December 2007 07-J-049
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In this paper I use panel data, including for service industries, from the Basic Survey of Japanese Business Structure and Activities, and analyze quantitatively the relationships between various company characteristics and total factor productivity (TFP)

Research and development and high-level usage of information networks have a positive relationship with companies' levels and growth rates of TFP. However, after controlling for firm fixed-effects, it has not been possible to confirm that the enhancement of the use of information networks gives an immediate boost to levels and growth rates of TFP, and so it can be inferred that inherent corporate culture and managerial quality are more fundamental determinants of productivity. The younger a company is, the higher its TFP, and this relationship is more pronounced in the retail industry and service industries. The utilization of part-time labor is related to an increase in the level of a company's TFP, but has a negative relationship with the TFP growth rate. Companies with higher ratios of foreign ownership tend to have higher levels and growth rates of TFP. In the manufacturing industry, an increase in the ratio of foreign ownership has a positive relationship with the TFP level, but I do not find evidence on this relationship in the retail industry and service industries.

In order to increase the productivity of service industries, it is necessary to understand the heterogeneity of companies. Policy should focus on changing the fundamental corporate characteristics, for example the companies' organizational capital and management quality.