Adaptability vs. Productivity

Economics

Speaker:Katsuya Takii, University of Essex
Date: Friday 1 March 2002
Time: 16:15
Location: Room 106 Streatam Court

Further details

I develop a model that allows me to empirically examine the impact of a firm's adaptability on its expected profit rates. Assuming that the production function is Cobb-Douglas and an unexpected productiv-ity (demand) change is log-normally distributed, my theory shows that the adaptability of the firm can be estimated by the correlation between the unexpected change and the logarithm of the deviation of actual input from theoretically predicted input. I conduct my empirical study by using the COMPUSTAT data set. My main findings are as follows. (1) Both productivity and adaptability have a significant and robust impact on the expected profit rates. (2) Large firms are more productive; an increase in risk demands more adaptability. (3) There has been no substantial increase in adaptability since the 70âs. But the expected profit rates have become more sensitive to adaptability.