The Impact of Internal Financing on Productivity―An Empirical Study on Chinese Listed Manufacturing Firms

Abstract

Using a panel of 1,747 Chinese manufacturing firms over the period of 2001 to 2016, we examine how internal financing affects labour productivity. Value-added revenue over total employees and total factor productivity are used as proxy for labour productivity. Different regressions models including OLS, FGLS, and GMM have been implemented to conduct the empirical analysis. The results show that internal financing has positive effect on firms' productivity as a whole. What is more, whether the firms have state-owned property or not differentiates the explanation of cash-flow boosted productivity improvement as well as equity-boosted productivity improvement. This paper further took firms' location and the effect financial crisis into consideration. It discovered that the degree of regional development, which is measured by nominal GDP, has significant positive impact on labour productivity, especially for state-owned enterprises (SOEs). The 2008 financial crisis is found to have a positive influence on after-crisis labour productivity. We believe this paper shed light on firms' after-crisis financing management and government policies to improve the financing structure in the manufacturing sector.