Financial structure, production, and productivity: evidence from the U.S. food manufacturing industry

Abstract

Abstract This study integrates production and financing to examine the impacts of financial structure change on the production, profitability, and productivity growth in the U.S. food manufacturing industry. Empirical results show that during the period covered by this study, agency cost associated with increased debt use by this industry negatively affected its output growth, input demand, profitability, and overall productivity growth. Dividend payment positively contributed to the production and performance of this industry via signaling benefit. However, the negative effects of increased debt use by this industry far outweighed the positive contribution of dividend payment. The U.S. food industry achieved a 0.9% average annual productivity growth, which came primarily from technological progress and capital adjustment. The rapid increase in debt use by this industry was responsible for slowing down the pace of productivity growth via its negative contribution to the total factor productivity growth. Capital expansion was the principal driver of output growth and profitability in this industry.

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