Asset specificity and firm efficiency

Purpose In this study, we examine the impact of asset specificity on firms’ operating performance, which is measured as firm efficiency. Design/methodology/approach We use regression analysis to examine the relation between asset specificity and firm operating efficiency. Findings Analyzing a dataset of over 165,000 firm-year observations from 1987 to 2022, we find a significant negative relation between asset specificity and firm efficiency, supporting our hypothesis. This relation suggests that firms with higher asset specificity face greater operational rigidity, higher costs and reduced adaptability, leading to lower efficiency. Originality/value Our study advances the understanding of asset specificity at the firm level, an area that has received limited empirical attention. Moreover, our study contributes to the ongoing debate on whether asset specificity is beneficial or detrimental to firms.