A comparative study on the production efficiencies of China's oil companies: A true fixed effect model considering the unobserved heterogeneity

With the promotion of 'One Belt, One Road' (OBOR) initiative, China's oil companies have speeded up the pace of 'Going Global Strategy' to expand their business internationally. The efficiency problems of China National Petroleum Corporation (CNPC) and Sinopec Group, which determine the international competitiveness, have drawn ever-increasing attention from both the general public and from decision makers. The wide variation in cultural, economic and institutional characteristics of different international oil companies may result in a large amount of unobserved heterogeneity. Distinguishing the time-invariant unobserved heterogeneity from time-variant inefficiency could avoid heterogeneity bias and thus ensure consistent efficiency estimates. Considering that the production efficiencies of the sample oil companies are influenced by various heterogeneous factors, this paper evaluates the production efficiencies of the world's 10 biggest oil companies during 2003-2013 based on the stochastic frontier analysis (SFA) method and the true fixed effect (TFE) model. Results suggest that: (1) estimation techniques that do not account for unobserved heterogeneity would produce biased efficiency estimates; (2) compared with other oil companies, the production efficiencies of CNPC and Sinopec Group were relatively improved after the global financial crisis; (3) China's state-owned oil companies should be further enhanced with the ability of internationalization management.