Technical efficiency and firm profitability in Russian manufacturing: leverage, firm age and two-stage DEA evidence

Purpose This study aims to examine when technical efficiency leads to firm profitability. Prior research reports mixed efficiency–performance evidence; the authors argue that this relationship is nonlinear and conditioned by firms’ ability to capture value from efficiency gains. Design/methodology/approach The analysis uses a balanced panel of 754 Russian manufacturing firms over 2019–2023, yielding 3,770 firm-year observations. In the first stage, output- and input-oriented variable returns to scale (VRS) data envelopment analysis (DEA) models estimate technical efficiency within industry-year cells. These orientations are interpreted as strategic proxies for output-expansion/aggressive and input-saving/conservative efficiency strategies. In the second stage, year fixed-effects panel regressions test linear and logarithmic efficiency effects and moderation by leverage and firm age. Findings Linear efficiency effects are insignificant, while logarithmic specifications show positive relationships between technical efficiency and return on assets. Profitability gains are strongest when firms move from low to moderate efficiency levels and decline near the frontier. Leverage consistently weakens the efficiency–profitability relationship, indicating that debt burden limits firms’ ability to convert operational advantages into financial returns. Firm age shows a negative moderating pattern in baseline models, but this effect is less robust across alternative specifications. Practical implications Managers should align efficiency-oriented modernization with sustainable financing capacity. Policymakers can support manufacturing competitiveness by improving access to long-term investment funding. Originality/value The study contributes to innovation and efficiency–performance literature by showing that technical efficiency pays off conditionally rather than automatically. It identifies financial structure as a key boundary condition for value capture from DEA-based efficiency strategies in a volatile emerging-market context.