Technical inefficiency and firm behavior: A panel study of small and medium Japanese manufacturing firms

This study examines the technical inefficiency of small and medium Japanese manufacturing firms by using panel data from the Basic Survey on Small and Medium Enterprises (2009–2018). We estimate the stochastic frontier production function with four production factors (regular workers, nonregular workers, capital stock and materials) and calculate the technical inefficiency of individual firms by applying a true random effects model that can distinguish technical inefficiency from firm heterogeneity.