Firm Total Factor Productivity Research Articles

Assessing the impact of green patents on pollution reduction: A micro-level study of Chinese industrial firms

As global warming and environmental degradation escalate, policymakers worldwide increasingly advocate for the development of green patents. However, there is ongoing debate regarding the effectiveness of green patents in actual pollution reduction. Some studies suggest that firms may engage in green patenting activities to align with government and market expectations rather than achieving substantive breakthroughs in pollution reduction. In light of this, it is crucial to examine the impact of green patents on pollution reduction. This study employs a PSM-DID model to analyze the impact of green patents on pollution emission intensity using plant-level data from Chinese industrial firms. The results demonstrate that with an average increase of 1% in the number of green patents, the industrial waste gas emission intensity and industrial wastewater discharge intensity decreased by 4.74% and 8.68%, respectively. Furthermore, pollution treatment facilities were found to be more effective than green patents during the sample period. On average, the contribution of waste gas treatment facilities and wastewater treatment facilities in pollution reduction is 3.33% and 9.79% higher than that of green patents. These findings suggest that firms should adopt a balanced approach when making decisions on pollution reduction. Further analysis shows that the pollution reduction effect of green patents is partly at the expense of the total factor productivity of firms. This trade-off highlights the need for policy interventions to support firms in integrating green technologies without compromising productivity. This study underscores the emphasizes of transitioning from end-of-pipe pollution control to green production processes to achieve sustainable development in China.

Water rights and firm productivity: evidence from the water rights trading policy in China

ABSTRACT Industrial firms are significant consumers of freshwater globally, but the impact of water management policies, particularly water rights trading, on their performance is not well understood. This study investigates the impact of the water rights trading policy on firm productivity in China. Employing the difference-in-differences approach and using data from Chinese listed firms during 2009–2019, we find that on average, the water rights trading policy increased the total factor productivity of firms by 6%. This productivity effect is confirmed through several robustness checks. We validate the enhancement of water utilization under the water rights trading policy and find that the productivity improvement effects of the water rights trading policy are mainly through alleviating resource misallocation, stimulating innovation activities and easing financial constraints. Heterogeneity analysis indicates that private firms, firms located in regions with abundant water resources, firms located in areas with more improved water infrastructure and firms operating in high water consumption industries benefit more from the policy. This study emphasizes the importance of water rights trading for industrial firms, demonstrating its effectiveness beyond the agricultural sector.

Digital Transformation and Firm Total Factor Productivity: Tests on the moderating effect of ESG

With the rapid development of digital economy, digital transformation has become the choice of enterprises in the rapid development of the economy, can it have a real impact on the productivity of enterprises? In this paper, based on the A-share data of listed companies in China from 2009 to 2022, we use "crawler" tools to extract the frequency of words related to digital transformation in the annual reports of the companies, and use them as indicators of digital transformation. We use the economic data of enterprises and calculate the TFP of enterprises based on the OP method. Two-way fixed effects are used to analyze the results. The results show that: first, digital transformation can effectively increase enterprise total factor productivity, and for every 1% increase in digital transformation indicators, TFP increases by 0.1096%, which still holds after considering endogeneity and passing the robustness test. Second, among the ESG indicators, environmental and corporate governance indicators inhibit the increase in firm total factor rate by digital transformation, possibly due to the lower returns to production as a result of higher costs. Third, the heterogeneity analysis finds that digital transformation brings differential improvements in TFP according to the geographic location of the firm and the firm's revenue, with the East being better than the Center, and high-revenue firms being better than low-revenue firms. The conclusion can provide empirical evidence for the economic benefits brought by digital transformation, and explores the direction of the influence of ESG performance in this process, providing a new perspective for enterprises to better carry out digital transformation.

Total factor productivity and institutional quality in Vietnam: which institutions matter most?

The roles of institutional quality’s impact on firm performance are becoming increasingly prominent in the literature. This is true in the Global North and South. Vietnam has seen less research on this topic than other developing countries, so this paper seeks to rectify this by examining whether or not institutional quality influences firm performance, as measured by total factor productivity (TFP). This paper also digs deeper into the sub-components to see which institutions are the most influential. We applied the General Method of Moments (GMM) approach to a firm-level panel dataset covering the 2010–2020 period to examine institutional quality's impact on firm TFP. Results are explored by firm size and by ownership type (domestic private, foreign and state-owned). Using rich datasets covering institutional quality at the provincial level in Vietnam and also individual firm performance from 2010 to 2020, we found that Time cost (how long it takes firms to deal with the government on various issues) and Labor policy (how easy it is to hire good quality labor) are the most important of the 10 institutions studied. Additionally, while not all institutions influence TFP, institutional quality overall (all 10 institutions combined) clearly has a positive influence on TFP. This study fills a research gap by examining the relationship between institutional quality and firm performance in Vietnam. The findings emphasize the significance of Time cost and Labor policy as influential institutions and highlight the positive overall impact of institutional quality on TFP. The policy recommendations offered provide valuable insights for the government to further enhance firm productivity through targeted measures.

Water rights trading and corporate productivity: Evidence from a quasi‐natural experiment of China's pilot policy

AbstractThe economic consequences of water efficiency that results from water policies remains controversial. Studies on how water rights trading (WRT), which allocates water resources in and across industries, influences corporate efficiency can reveal the behavioral response of market participants to increase water efficiency. Considering the WRT pilot implemented in 2014 as a quasi‐natural experiment, we adopt the difference‐in‐difference‐in‐differences method to evaluate its impact on corporate total factor productivity (TFP). Our findings show that WRT significantly stimulates the TFP of firms with high water costs. This effect is achieved by promoting water‐related green innovation and optimizing resource allocation instead of alleviating corporate risks. Furthermore, the impact of WRT is more pronounced in areas with lower levels of water endowment and market development. The research findings have strikingly important policy implications regarding water management in China through WRT.

How air pollution affects corporate total factor productivity?

To explore the relationship between air pollution and total factor productivity and new pathways, This paper examines the impact of air pollution on total factor productivity of A-share listed companies in Shanghai and Shenzhen between 2015 and 2019. It investigates this relationship by considering two pathways: investor sentiment and government attention. The findings indicate that air pollution suppresses total factor productivity of firms. However, air pollution stimulates investor sentiment, which in turn increases R&D investment and total factor productivity, reducing to some extent the dampening effect of air pollution on total factor productivity. There exists a notable positive correlation between air quality and government attention, acting as a mediating variable. This implies that air pollution has the potential to capture the attention of governmental entities, leading to the implementation of appropriate measures aimed at managing and mitigating the occurrence of air pollution caused by industrial enterprises.And the relevant governments should formulate a series of policies to meet the different needs of different enterprises. These two approaches have varying impacts depending on the type of enterprises, thus governments should develop laws to cater to the various demands of different types of enterprises.

The Contrasting Impacts of Chinese Local Government Debt on Firm’s Total Factor Productivity: Crowding-Out vs Crowding-In

ABSTRACT This study investigates the contrasting impacts of local government debt on firm total factor productivity (TFP). Using a general equilibrium model and a panel dataset of Chinese firms from 2015 to 2019, we uncover that local government debt affects TFP via opposing crowding-out and crowding-in effects, mediated by firm financing constraints and R&D spending. Debt management efficiency is a vital determinant of these contrasting effects: efficiently managed debt (local government bonds) relaxes financing constraints and stimulates R&D, positively affecting TFP, while inefficiently managed debt (municipal investment bonds) tightens constraints and hampers R&D, negatively affecting TFP. Empirical results reveal heterogeneous impacts, with both crowding-in and crowding-out effects most pronounced among structurally disadvantaged firms (financially constrained and small firms in less developed regions). This study contributes by uncovering the contrasting effects of local government debt on TFP and offers policy insights on optimizing public debt financing to maximize productivity in emerging economies.

Does e‐commerce infrastructure increase enterprise productivity? Evidence from China's e‐commerce demonstration city

AbstractThis study leverages the National E‐commerce Demonstration City Pilot (NEDC) as a quasi‐natural experiment in e‐commerce infrastructure development. Utilising panel data from non‐financial firms listed on China's A‐share market from 2005 to 2022, we pioneered employ a multi‐period difference‐in‐differences (DID) approach to explore the direct and indirect effects of e‐commerce infrastructure on total factor productivity (TFP). Our findings reveal that: (1) The NEDC initiative significantly enhances firm‐level TFP. This result remains robust after addressing endogeneity issues through IV‐2SLS and propensity score matching and difference in differences methods and undergoing a series of robustness tests. (2) Channels tests indicate that the NEDC policy indirectly boosts firm TFP primarily by fostering technological innovation and augmenting human capital. (3) Heterogeneity analysis demonstrates that the NEDC policy effectively stimulates TFP growth in state‐owned enterprises, firms with high equity concentration, manufacturing and low‐tech industry firms. The policy's impact is more pronounced in cities with high administrative levels, in the eastern and central cities, and in cities with superior traditional infrastructure. The empirical evidence provided by this study not only supports the role of e‐commerce infrastructure in driving economic growth but also offers valuable insights for bridging the income disparity between developing and developed nations, and mitigating income inequality.

Government Subsidies, Green Innovation, and Firm Total Factor Productivity of Listed Artificial Intelligence Firms in China

Government Subsidies, Green Innovation, and Firm Total Factor Productivity of Listed Artificial Intelligence Firms in China

The role of venture capital in determining the total factor productivity of renewable energy enterprises: In the context of government subsidy reduction

Studies examining the correlation between venture capital (VC) and total factor productivity (TFP) have yielded inconsistent conclusions. In the context of government subsidy (GS) reduction, VC is gradually becoming a crucial external financing channel for renewable energy (RE) enterprises. Nevertheless, there is a scarcity of research concerning the influence of VC on the TFP of RE firms, and the impact of GS on their relationship is also insufficiently considered. Therefore, employing two-way fixed-effects and threshold effects models, this research investigates the impact of VC on TFP in 114 Chinese RE enterprises from 2011 to 2021 and analyzes the role of GS in shaping this association. The conclusions are outlined as follows: (1) Overall, VC notably boosts the TFP of RE firms. (2) VC can indirectly improve TFP by fostering R&D investments and mitigating financing constraints. (3) A single threshold effect is identified in the correlation between VC and TFP based on GS. Significant positive effects of VC on TFP are observed only when GS is below 1.07%. This implies that, in the context of GS reduction, the beneficial effect of VC on the TFP of RE firms is gradually becoming evident. Based on this, we propose targeted policy suggestions.

Unveiling the affecting mechanism of digital transformation on total factor productivity of Chinese firms.

The importance of digital transformation (DGT) for increasing productivity cannot be negated and Chinese firms are rapidly embracing the digital transformation for their sustainability. But the mechanism and impact of digital transformation on total factor productivity (TFP) of firms is still unclear and this study is intended to fill this gap using the data of 3112 listed firms of China during 2011 to 2022. We applied various econometric techniques like stepwise regression analysis, instrumental variable approach, differences in difference approach, and mediating analysis to determine the relationship between digital transformation and TFP and robustness of estimated findings. The findings indicate that DGT has a positive impact on overall TFP of firms in China while operating efficiency, cheaper costs, and a stronger capacity for innovation mediates this relationship. Moreover, it is explored that conventional information and communication technologies have not significant impact on TFP of firms. The findings of the study remain valid even applying many robustness checks and attempts to control the issue of endogeneity. To fully leverage the potential benefits of digital transformation on TFP, it is essential to focus on enhancing digital literacy and skills among the workforce. Governments and relevant stakeholders should prioritize and invest in comprehensive digital literacy and skills training programs to empower the workforce with the knowledge and expertise needed to navigate the digital age effectively.

A Non‐parametric Estimation of Productivity with Idiosyncratic and Aggregate Shocks: The Role of Research and Development (R&D) and Corporate Tax

We develop a non‐parametric technique framework for estimating firm‐level Total Factor Productivity (TFP). Our paper has two major novelties: first, we propose a modelling of productivity with both firm‐idiosyncratic factors and aggregate shocks. Second, we apply the Bayesian Markov Chain Monte Carlo (MCMC) technique that offers a numerical integration of productivity outside the posterior overcoming the restrictive assumptions about the relationship between productivity and variable production inputs. We implement our methodology in a group of 4,286 manufacturing firms from France, Germany, Italy, and the UK (2001–14). The results show that: (i) aggregate shocks matter for firm TFP evolution. The global financial crisis of 2008 caused severe, albeit short, adverse effects on TFP; (ii) there is substantial heterogeneity across countries in the way firms react to changes in R&D and taxation. German and UK firms are more sensitive to fiscal changes than R&D, while the opposite is true for Italian firms. R&D and taxation effects are symmetrical for French firms; (iii) the UK productivity handicap continues for years after the financial crisis; and (iv) there are substantial knowledge spillovers among German and Italian firms.

Robots and Firm Total Factor Productivity: Evidence from China

Robots and Firm Total Factor Productivity: Evidence from China

The influence of the guidance on building a green financial system on environmentally friendly firms’ total factor productivity in China

With China's proposed green development strategy, environmental protection investment needs are growing exponentially, and government funding alone is inadequate to meet the massive demand. To encourage social investment in green industries and achieve green development goals, the authorities implemented the major green finance policy entitled the Guidance on Building a Green Financial System (GBGFS) in late 2016. Whether this policy effectively promotes the development of environmentally friendly (EF) firms is an essential under investigated question. This study employs a difference-in-differences approach to explore whether and how the GBGFS affects EF firms' total factor productivity (TFP) with a sample from 2012 to 2021. Our benchmark regression and robustness tests demonstrate that the GBGFS effectively promotes EF firms' TFP. We also obtain three notable research findings with a number of additional analyses. (a) Although there is a certain lag, the policy effect was obviously enhanced with the passage of time. (b) Our threshold effect analyses reveal that the enhancing effect of the GBGFS on EF firms' TFP only becomes significant when research and development (R&D) investment, profitability (ROA), and government subsidies (GSF) exceed certain values. Further analysis demonstrates that firms with higher ROA and more GSF can effectively increase R&D. (c) Finally, GBGFS implementation has a greater impact on firm TFP in China's more developed region than its less developed regions. The findings suggest that regulatory authorities should persist in enforcing the GBGFS policy and encourage corporate R&D investment. In addition, the central government should design targeted policies based on the characteristics of different regions to improve the policy effect.

Does Confucian culture reduce firms' pollution emissions

AbstractThis paper explores the influence of Confucian culture on firms' emissions. We measure Confucian culture during the Ming and Qing dynasties using the density of jinshi in that region and test the causal relationship between Confucian culture and firms' emissions using the Annual Survey of Industrial Firms (ASIF) and China's Environmental Statistics Database (CESD) from 1998 to 2013. Our research reveals that regions with a stronger Confucian cultural influence have a significant reduction in pollution emissions from their firms. Further analysis demonstrates that the government in regions with a strong Confucian cultural influence attaches more importance to environmental protection and enforces stricter environmental regulations on firms. Besides, the people demonstrate heightened environmental awareness, incorporating it into economic development, thus reducing firms' pollution emissions. In addition, Confucian culture can reduce pollution emissions by improving the total factor productivity of firms.

The Communist Party of China embeddedness in corporate governance and total factor productivity: Evidence from private firms in China

This research offers a comprehensive exploration into the influence of the Communist Party of China's involvement in corporate governance and its subsequent effect on the total factor productivity of firms. Drawing data from publicly listed firms spanning from 2008 to 2021, we employ a multi-period difference-in-differences analytical approach. Our investigations reveal that the establishment of party organisations within private firms notably enhances their productivity. Empirical evidence consistently underscores the positive role of the Communist Party of China in elevating productivity standards. This outcome is further corroborated through rigorous validation tests.

The impact of green finance policy on total factor productivity: Based on quasi-natural experiment evidence from China

Treating the implementation of green finance policy as a quasi-natural experiment, we explore its effect on the total factor productivity of firms, then perform several tests to illustrate the stability of this effect, and then explain this effect based on financing constraint and technological innovation. It has been found that the green finance policy has an inhibitory effect on total factor productivity, which is validated in various tests including the parallel trend test, the heterogeneity treatment effect test, and the robustness test including the placebo test and endogeneity test. The heterogeneity analysis shows that different ownership types and industry type of firms have different impacts on this effect. Further extended analysis reveals that the policy leads to the flow of financial resources from polluting firms to non-polluting firms. There is no significant improvement in technological innovation in non-polluting firms, while there is a significant decline in technological innovation in polluting firms due to lack of credit support. Finally, we make several recommendations based on our findings to achieve precise implementation of the green finance policy.

Does geographical decentralisation harm the total factor productivity of firms in China?

ABSTRACT Under dual market and policy forces, industries vacated central business districts in Chinese cities, showing a decentralised layout. Using Chinese industrial firms’ micro-data (2004–12), with township-level division as the unit, we describe urban industrial decentralisation and polycentric layout, exploring their impact on firms’ total factor productivity (TFP). We found that: (1) industrial decentralisation negatively impacted TFP during the early and middle stages of urbanisation; (2) the polycentric layout can alleviate the firms’ TFP losses caused by decentralisation; and (3) industrial decentralisation reduces diversified agglomeration, lowering TFP. The conclusions of this study provide policy recommendations for urban industrial spatial planning.

Digital transformation and firms' total factor productivity: The role of internal control quality

This paper examines the effects of digital transformation on firms' total factor productivity (TFP) and its underlying mechanisms using panel data from Chinese A-share listed companies between 2013 and 2021. By employing panel regression and mediation effect models, our findings demonstrate that digital transformation significantly enhances a firm's TFP. Furthermore, we reveal that digital transformation fosters TFP growth by enhancing the quality of internal control. This article offers novel insights into the mechanistic pathways through which digital transformation influences firm productivity.

R&D Deduction Intensity, Entrepreneurship and Total Factor Productivity of Firms

This paper selects A-share listed manufacturing companies from 2016 to 2022 for analysis, and uses the data to investigate the interrelationships among three dimensions: the strength of R&D add-on deduction, entrepreneurship, and total factor productivity of firms. The aim is to explain the policy implementation effects of China's R&D add-on deduction policy since the 1990s. This paper examines the significant effect of the strength of the add-on deduction policy on enhancing the total factor productivity of firms and the positive moderating role of entrepreneurship in the impact of the strength of R&D add-on deduction on the total factor productivity of firms. The purpose of this paper is to provide a realistic basis for the national policy of optimizing R&D cost-added deduction to promote high-quality development of China's listed manufacturing industry.