4.3 Impact of Changing Product Mix on Firm Characteristics
Analysis in previous sections has shown that product adding pushes firms into new industries and sectors; newly added and dropped products make up a large portion of firm activity; and there exist significant relationships between changes in firm performance and product mix.
To analyze the relationship between changing product mix and firm behaviour, simple OLS regressions of changes in firm characteristics on dummy variables capturing contemporaneous product switching behaviour is used.
where Z represents firm characteristics, and Drop and Add are as defined above. These regressions include industry and time fixed effects and the standard errors are clustered at the industry level as well. The firm characteristics that we consider are sales, employment, wages, productivity, value of exports and value added.
Regressions reported in Table 11 include all continuing firms in the sample. The results show that dropping products is associated with lower sales, employment, wages, exports, productivity and value added. Adding products leads to higher sales and employment, i.e., an increase in firm size. Adding products is also associated with higher wages, value of exports and value added. The results for productivity are not significant.
| (1) | (2) | (3) | (4) | (5) | (6) | |
|---|---|---|---|---|---|---|
| Sales | Employment | Wages | Productivity | Exports | Value Added | |
| Dropped | -0.088 | -0.051 | -0.055 | 0.014 | -0.317 | -0.068 |
|
|
(7.07)** | (5.72)** | (5.77)** | (0.97) | (20.94)** | (4.32)** |
| Added | 0.081 | 0.051 | 0.060 | -0.007 | 0.526 | 0.065 |
|
|
(6.67)** | (5.87)** | (6.47)** | (0.52) | (35.23)** | (4.21)** |
| Constant | -0.072 | -0.101 | -0.244 | -0.214 | 0.178 | -0.108 |
|
|
(1.22) | (2.22)* | (4.36)** | (2.32)* | (13.26)** | (1.30) |
| Observations | 22150 | 18330 | 18695 | 15995 | 51240 | 18710 |
| Number of Industries | 95 | 95 | 95 | 95 | 95 | 95 |
| R-squared | 0.01 | 0.01 | 0.01 | 0.00 | 0.03 | 0.01 |
Note: Table reports OLS regressions of change in log firm characteristics on dummy variables indicating product switching behaviour. Standard errors are adjusted for clustering at the industry level, and regressions include industry and time fixed effects. Number of observations rounded to nearest five for confidentiality reasons.
It should be noted that these results provide descriptive statistics on the correlation between firm characteristics and the decision to add or drop products. They show that changes to the product mix are associated with changes in observed firm outcomes. Determination of the product mix is endogenous, so the coefficients of the regression capture the correlation between changes in firm characteristics and the decision to change product mix as well as the impact of changes to product mix on firm characteristics conditional on the decision to alter the product mix.
