In this study, we looked at the trend of accounting productivity, absolute productivity levels measured by labor and capital productivity and technical efficiency, and total factor productivity change for about 2,000 firms including 55 public firms and 1,960 private firms of the Chaebol, non-Chaebol firms.

To measure the level of technical efficiency in the production and total factor productivity change including technological change, technical efficiency improvement and economies of scale, we specified an econometric model that uses the stochastic frontier production function. Estimation of a translog function gives parameter estimates of the production function, the variance composition of the error term, the parameters necessary to measure technical efficiency, and the statistical distribution of the error term representing technical efficiency. Parameter estimates generally show good statistical properties.

The main findings of this study can be summarized as follows: First, this study finds that public firms compared to private firms enjoy high net income and stability in their levels despite lower sales per person and fixed assets as well as lower labor, capital productivities and technical efficiency. Especially, the level of technical efficiency of public firms has remained lower than for private firms. Even though large public firms have a similar level of technical efficiency comparable to the top 30 Chaebol, small public firms have lower technical efficiency level than private firms.

Second, the growth rate of total factor productivity of both private and public firm has decreased after the financial crisis. As one component of TFP growth, the technological change of individual firms show a similar trend and level of growth to the TFP growth rate, which has continued to fall ever since the financial crisis. Private firms have displayed higher technological change than public firms. Small firms among public firms, and non-Chaebol firms among private firms, have also achieved higher technological innovation.

In terms of the scale economy, although all private firms have experienced diseconomies of scale after the financial crisis, they have begun to show signs of recovery. All private and public firms face similar changes in technical efficiency. Small public firms and non-Chaebols have achieved higher change in technical efficiency than large public firms and the top 30 Chaebols respectively.

Third, our analysis on total factor productivity before and after the financial crisis reveals that the change of TFP mainly depends on technological change rather than scale economies or technical efficiency change. However, there is only a drastic change in the economies of scale change without any extreme change in the trend of technological change and technical efficiency change in the restructuring period, especially in 1998, implying that there has been no sufficient effort to enhance firms future competitiveness.

We also observed that, in corporate restructuring, labor productivity surged sharply mainly due to the layoff of employment rather than the sales of fixed asset, technological innovation and technical efficiency change. Therefore, the direction of restructuring of Korean firms, especially those that suffered from the financial crisis may be inappropriate and may not contribute to sustainable economic growth.