We investigate the significance of subcontracting arrangements as a source of knowledge transfer and increased efficiency for Czech firms during 1993-96. We draw on detailed enterprise surveys and interviews with the managers of 373 manufacturing firms in the Prague region. The results suggest a positive correlation between employee training and subcontracting. Subcontracting is also associated with a reduction in variable costs and a price premium on the stock market. The effect of subcontracting on other firms in the same industry is weak. A high share of subcontracting activity in a particular industry is associated with increased valuation of firms without foreign partners as investors anticipate more subcontracting arrangements. (C) 2000 Elsevier Science Ltd. All rights reserved.
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