Microeconomic and Macroeconomic Determinants of Efficiency: Evidence from Indian Manufacturing Sub-Sectors

Abstract

In this paper an effort was made to evaluate the level of efficiency of the firms that belong to the selected manufacturing sub-sectors in India for the period 1999-2000 to 2013-2014 using Stochastic Frontier Analysis. Subsequently, the microeconomic and macroeconomic determinants of efficiency were analysed applying Panel Censored Tobit Regression Model. The study revealed that Electrical Equipment sub-sector was found to be the most efficient sector followed by the sub-sectors Auto Parts and Equipment, Pharmaceutical and Biotechnology, Chemicals, Textile, Food products and Steel respectively. The study also showed that leverage, size of the firm, age of the firm, openness of the firm (microeconomic) and inflation (macroeconomic) made notable contribution towards changing the level of efficiency of manufacturing firms during the study period. However, their contributions were not the same in all sub-sectors under study.

Macroeconomic and Microeconomic Determinants of Efficiency of Indian Construction & Engineering Firms: An Investigation

“…Large sized firms are in a better position to exploit the economies of scale which enables the firms to attain greater level of efficiency as compared to the smaller ones. In addition to this, large sized firms also enjoy greater bargaining power in the factor market and easy access to credits (Maji et al, 2020a). The outcome of the study supports this theoretical proposition (Firth et al, 2015;Lundvall & Battese, 2000;Söderbom & Teal, 2004;Halkos & Tzeremes, 2007).…”

“…Moreover, the positive impact of PF also indicates that the firms could handle the challenges emanating from the increase in the price level. It may be due to the fact the during inflation the firms become more disciplined and organised so as to reduce the impact of increasing price through higher level of efficiency (Maji, 2018a). Therefore, the overall effect of the principal component 'PF' was noticed to be positive and statistically significant on the level of efficiency of the construction and engineering firms during the period of study.…”

“…The objective of the maximization of the shareholders wealth is largely dependent upon the level of efficiency of the firm at which it is operating. In a highly competitive business environment, it is of utmost importance to manage the business with the highest degree of efficiency to sustain in the long run (Maji, 2018a). The efficiency and the productivity of the firms get influenced by numerous factors which can broadly be clustered into firm specific factors, industry specific factors and macro economic factors (Sufian, 2009).…”

“…The existing literature also identified different factors having significant impact on the efficiency of the large size firms. Some of the important factors identified by the earlier research studies were size of the firm, age of the firms, ownership structure, number of employees, profitability, prevalence of competition, liberalization, export intensity , import penetration, labour cost, foreign ownership, capitalization, subsidies, management costs, education of the owners, quality of human capital, liberalization, R & D, existence of crimes and political risk, infrastructure, product diversification and international diversification, use of technology, managerial efficiency, remuneration to the top management and workers, market to book value ratio, financial leverage, Government quality, taxes, foreign investment and training cost of the employees (Pitt & Lee, 1981;Blomström, 1986;Kumbhakar Ghosh & McGuckin, 1991;Zheng, Liu & Bigsten, 1998;Chuang & Lin, 1999;Piesse & Thirtle, 2000;Chapelle & Plane, 2005;Ismail & Sulaiman, 2007;Yu, Barros, Yeh, Lu, & Tsai, 2012;Forlani, 2012;Doaei, Ahmad Anuar & Ismail, 2015;Giokas, Eriotis & Dokas , 2015;Firth et al, 2015;Jain, Kundu & Newburry, 2015;Baek & Neymotin, 2016;Pilar, Marta & Antonio, 2018;Maji, Laha & Sur , 2020a;Mazorodze, 2020). Hanousek et al (2015) suggested that the efficiency of the firms also depends upon the control of the domestic owners and the importance of the minority shareholder.…”

“…Jangili (2019) in an effort to examine the effect of firm size and group affiliation found out that large size and group affiliated Indian firms were found to be less cost efficient. In recent time Maji (2018a; 2018b) and Maji et al, (2020a) tried to explore various microeconomic as well as macroeconomic variables affecting selected manufacturing sub-sectors in India. The outcome of these studies revealed that leverage, age, size, openness, growth, inflation and exchange rate were the major determinants of firm efficiency.…”