Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/19967 
Year of Publication: 
2004
Series/Report no.: 
Papers on Entrepreneurship, Growth and Public Policy No. 2204
Publisher: 
Max Planck Institute for Research into Economic Systems, Jena
Abstract: 
Using a panel data set of 361 German corporations for the period 1991 to 1996 we test the hypothesis that firms with more efficient governance structures have higher profitability. To determine efficiency we compare firms with respect to ownership concentration, the identity of owners, capital structure, investment and firm growth by a multi-input/multi-output Data Envelopment Analysis (DEA). This non -parametric linear programming technique considers both multiple in- and outputs. Based on the concept of pareto efficiency, it computes an efficiency score where the associated weights of the inputs and outputs are determined endogenously. The DEA efficiency scores are then used as explanatory variables in panel data regressions of profitability. Our main finding is that the efficiency scores indeed contribute significantly to explaining profitability differences between firms, even after controlling for industry effects and unobserved systematic firm effects.
Subjects: 
firm performance
ownership concentration
owner identity
managerial discretion
JEL: 
G3
L1
Document Type: 
Working Paper

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