Quality standards, crime management and the efficiency of manufacturing firms in middle-income economies

Abstract

Purpose This study investigates the ability of crime management expenses, recognised external quality certification and ownership structure to describe the cross-sectional changes in the capital and labour efficiencies of manufacturing firms in middle income economies. It controls for the potential effects of graft incidence and firm age on firm-level efficiency. Design/methodology/approach The study adopts a state space model approach within the context of cross-sectional regressions. Data for the study are obtained from the World Bank Enterprise Survey for 2006, 2009, 2013, 2016 and 2019. Findings The study provides evidence that crime management expenses impact labour efficiency negatively. Also, its effect on capital efficiency is positive in 2019 and negative in 2013 and 2016 eras. Additionally, external auditor services and internationally recognised quality certification increase labour and capital efficiencies. Graft incidence exerts negative and positive effect on capital efficiency in the recent and earlier periods respectively. In addition, older firms tend to have higher labour efficiency, whilst younger firms have higher capital efficiency. There is evidence of firm size and export orientation effects in the drivers of efficiency. Originality/value Policies aimed at creating graft and crime-free business environment will enhance the efficiency and growth of firms' particularly for small firms. Also, the market rewards recognised quality assurance and good reputation.