1. CORPORATE PRODUCTIVITY GROWTH: CHAMPIONS, LEADERS, AND LAGGARDS
- Author
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Tobias Kretschmer, Paul A. Geroski, and Chris F. Walters
- Subjects
Economics and Econometrics ,Labour economics ,Variable (computer science) ,Wright ,Economic growth ,Earnings ,Rest (finance) ,Champion ,Economics ,Profitability index ,Standard of living ,General Business, Management and Accounting ,Productivity - Abstract
I. INTRODUCTION Economists and policymakers consider productivity growth to be "the principal source of improvements in living standards." (1) Not surprisingly then, tracking and explaining productivity growth at the national or industry level have a long tradition in economic research. Most studies have focused on explaining differences across countries and over time, with the aim of identifying countries that grow consistently faster than others, or economy-wide factors or circumstances that will help countries enjoy superior productivity growth. Overall, it seems clear that at least some of the variability in aggregate productivity growth is systematic: it is noticeably procyclical and displays some unexpected structural breaks (as, e.g., in the UK productivity growth slowdown in the 1970s). Notwithstanding this variability, however, some countries stand out as being persistently high--productivity growth performers and others as being persistently low, at least over a span of one or more decades (e.g., Crafts and Mills 2005; Hulten 1990), while in some economies phases of "high" and "low" productivity growth can be identified quite clearly (e.g., Nelson and Wright 1992; O'Mahony 1999). Studying aggregate productivity growth may not tell the whole story, however. For example, a country or an industry displaying superior growth could be strong "across the board," with all (or most) firms outperforming their peer group of firms in other countries or industries. In this case, the high average level of productivity growth is driven by the high median level of productivity growth. Alternatively, superior performance could be driven by a small group of above-average performers who outweigh the average performance of the rest. Here, the high average level of productivity growth is well above the median level of productivity growth and is driven by productivity "outliers." What is more, these outliers could be the same firms every year ("productivity champions") of the identity of such superior performers could switch periodically. Such considerations have a significant bearing on growth-enhancing policies and may help guide the search for sources of high productivity growth. If, for example, a small number of firms were consistent strong performers, studying the characteristics of these firms would help uncover some important sources of economy-wide productivity growth. Conversely, if these "bursts" of productivity leadership by a small but unpredictable group of firms were short lived and driven by more of less unpredictable shocks, finding a way to make more firms benefit from these shocks and identifying which types of shocks create a climate conducive to productivity growth could help raise aggregate productivity growth. Taking productivity growth (rather than levels) as the performance variable of interest, it is interesting to ask why certain firms outperform others: that is, what makes a "productivity leader"? However, it is arguably even more interesting to understand what determines how long any particular firm will outperform its peers: that is, what makes a "productivity champion"? Outstanding performance in any one year may well be due to a (combination of a) whole host of exogenous and transitory factors; persistent superior performance is much more likely to reflect permanent, deep-seated sources of competitive ability or advantage. Our paper hopes to make four contributions to the literature. (i) By studying individual firms' productivity growth rather than aggregate growth, we give some insight into the degree of heterogeneity in the performance of firms in an economy--is productivity likely to be driven by a small number of champions or a general climate conducive to high growth? (ii) By measuring superior performance using productivity growth, we avoid the well-known problems of measuring performance through accounting profitability. Accounting profitability is often manipulated by firms to display stable earnings over time, which will exaggerate the stability of corporate performance. …
- Published
- 2009
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