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Total Factor Productivity (TFP) and Financial Markets

Author

Listed:
  • Min Bai

    (University of Waikato, Hamilton, New Zealand)

  • Dong Zhang

    (Zhengzhou University, Henan, China)

  • Jiaoying Yang

    (Zhengzhou University, Henan, China)

Abstract

The dynamic interplay between real firms and the financial markets remains under continuous government scrutiny, reflecting the evolving diversity that accompanies the expansion of financial markets. Given the financial market's critical role in capital provision, it is essential to understand how different funding relationships influence firm performance. This study focuses on A-share listed companies in China from 2013 to 2023, categorizing their funding relationships into two distinct types: net investment and net financing. The analysis reveals a significant dampening effect on Total Factor Productivity (TFP) associated with net investment-based funding relationships. Mechanistic investigations indicate that this suppression is due to the diversion of capital from core business activities towards net investment activities, ultimately hindering productivity. These findings offer valuable insights into the complex relationship between real firms and the financial markets, highlighting the varied mechanisms through which the financial markets can either enhance or impede firm value. Additionally, the study provides practical policy recommendations for regulatory authorities aimed at optimizing the real economy's access to financial services by refining the funding relationships between real firms and the financial markets.

Suggested Citation

  • Min Bai & Dong Zhang & Jiaoying Yang, 2025. "Total Factor Productivity (TFP) and Financial Markets," American Business Review, Pompea College of Business, University of New Haven, vol. 28(1), pages 176-202.
    • Handle: RePEc:ris:ambsrv:0132
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    More about this item

    Keywords

    Financial Markets; Net-Investment Type; Net-Financing Type; TFP;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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