Firm Efficiency: Domestic Owners, Coalitions, and FDI

In this paper we analyze the evolution of firm efficiency in the Czech Republic. Using a large panel of more than 190,000 Czech firm/years we study whether firms fully utilize their resources, how firm efficiency evolves over time, and how firm efficiency is determined by ownership structure. We employ a panel version of a stochastic production frontier model for the period 1996–2007 with time-varying efficiency. We differentiate among various degrees of ownership concentration and domestic or foreign origin. In a two-stage set-up we estimate the degree of firm inefficiency and then we estimate the effect of ownership structure on the distance from the efficiency frontier. Our results support the hypothesis that concentration and foreign ownership are positively related to efficiency and that FDI has beneficial effects at the microeconomic level. However, we show that a simple majority is not necessarily the best structure to improve efficiency. We further analyze the effects of ownership coalitions, and shed light on many other subtleties of how ownership and the specific industry affect firm efficiency.