Is productive inefficiency a fatal disease? The effects of technical and scale efficiency in firm exit: the case of the Greek rubber and plastic industry

Abstract

This article presents an integrated framework for testing the effects of productive efficiency, i.e. technical efficiency (TE) and scale efficiency (SE), on firm exit, facilitating the identification of the effects, causing a firm's operation at increasing or decreasing returns to scale. A panel data set of firms in the plastics and rubber industry of the Greek manufacturing sector is used to study the effect that TE and SE may have on a firm's probability to exit. Results reveal that technical efficiency is the most critical factor influencing firm exit, while SE exerts a quadratic effect on the probability to exit.