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Understanding US firm efficiency and its asset pricing implications

Journal article
Authors G. Calice
L. Kutlu
Ming Zeng
Published in Empirical Economics
ISSN 0377-7332
Publication year 2019
Published at Department of Economics
Language en
Keywords Asset prices, Efficiency, Frictions, Stock return anomalies, Total factor productivity
Subject categories Economics and Business


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

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