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Understanding US firm efficiency and its asset pricing implications

  • Giovanni Calice
  • Levent KutluEmail author
  • Ming Zeng
Article
  • 58 Downloads

Abstract

We investigate the link between firm-level total factor productivity (TFP) growth, technical efficiency change, and their implications on firm-level stock returns. We estimate total factor productivity growth of US firms between 1966 and 2015 and decompose TFP growth into returns to scale, technical progress, and technical efficiency change components. We show that most of the variation in TFP growth is explained by variation in technical efficiency change. Moreover, we examine the effects of important macro- and micro-level factors on inefficiency as well as its asset pricing implications. We find that low-efficiency firms are more vulnerable to a wide class of aggregate economic shocks, and the well-known five stock return anomalies (Fama and French in J Financ Econ 116(1):1–22, 2015) are more pronounced among those firms. Our results also emphasize the role of macroeconomic determinants of efficiency, and the stability effects of many useful policy targets on firm-level TFP.

Keywords

Asset prices Efficiency Frictions Stock return anomalies Total factor productivity 

JEL Classification

D22 D24 G12 

Notes

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of Business and EconomicsLoughborough UniversityLoughboroughUK
  2. 2.Department of Economics and FinanceUniversity of Texas Rio Grande ValleyEdinburgUSA
  3. 3.Department of Economics and Centre for FinanceUniversity of GothenburgGothenburgSweden

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