The relationship between firm size and efficiency: why does default on bank loans matter?

Abstract

This paper presents an investigation of the interconnection between firm size and efficiency under the financial constraints lens. Specifically, we used the Data Envelopment Analysis (DEA) technique to measure the efficiency of a sample of large, medium-sized and small private Italian firms, using the firms’ default risk as an undesirable output. Our findings indicate that larger companies perform better than medium-sized and smaller companies in terms of efficiency (across all business profiles), including default on bank loans. Based on indicators widely employed to characterize the bank-firm relationship, our study demonstrates the need to improve the efficiency of the Italian entrepreneurial system, consisting mainly of small companies, through their dimensional growth.