FINANCIAL DECENTRALIZATION, FINANCING CONSTRAINTS, AND TOTAL-FACTOR PRODUCTIVITY: EVIDENCE FROM CHINA

Equipment manufacturing is a high-tech industry where research and development (R&D) is difficult and capital intensity is high. The industry is easily affected by financing constraints and the external financial environment. To explore the effect of financial decentralization and financing constraints on total-factor productivity (TFP), using the data of China's listed equipment manufacturing companies (CLEMC) from 2000 to 2019 and a fixed-effects model, the TFP of equipment manufacturing was analyzed based on production function, the impact of financial decentralization and financing constraints on TFP was examined, and the mechanism by which financial decentralization affects TFP through financing constraints was tested by using the intermediary-effects model. Results show that financial decentralization has a significant positive effect on TFP in CLEMC, and increasing financial decentralization is conducive to improving TFP. Financing constraints have a significant negative effect on TFP; the greater the financing constraints, the greater the inhibitory effect on TFP. Testing for mediation effects shows that the promoting effect of financial decentralization on TFP is concealed by the inhibitory effect of financing constraints. Therefore financial decentralization promotes TFP under reduced financing constraints. Conclusion enriches the literature on TFP and provides empirical evidence from which to further understand the relationships among decentralization, constraints, and TFP.