IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v103y2025ics1059056025005623.html
   My bibliography  Save this article

Unveiling low productivity premium: A tale from emerging market

Author

Listed:
  • Ding, Zhiguo
  • Qi, Ji
  • Tang, Yun
  • Zhao, Xuankai

Abstract

This study investigates how firm-level productivity, measured by total factor productivity (TFP), is priced in cross-sectional stock returns in China, which is the largest emerging market as well as the global manufacturing hub. We document a significant low productivity premium with an annualized return of 6.6 %, where firms with lower productivity earn higher returns compared to their higher counterparts. Low productivity firms are characterized by small size, low value, weak current profitability, illiquidity, high earnings, and idiosyncratic volatility. The low productivity premium phenomenon is robust based on comprehensive sets of empirical models and even after controlling for conventional risk factors and alternative firm characteristics. We further explore potential explanations for the low productivity premium and find that the phenomenon is primary driven by mispricing associated with arbitrage limits. Our results extend the asset pricing literature by highlighting the distinct dynamics of production-based premium in emerging markets, providing novel insights for academics, regulators, and investors interested in understanding the return predictability in immature emerging market.

Suggested Citation

  • Ding, Zhiguo & Qi, Ji & Tang, Yun & Zhao, Xuankai, 2025. "Unveiling low productivity premium: A tale from emerging market," International Review of Economics & Finance, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025005623
    DOI: 10.1016/j.iref.2025.104399
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025005623
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.104399?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025005623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.