Liquidity and technical efficiency in the textile industry in southern China: A DEA approach

This paper studies the relationship between liquidity and technical efficiency in the textile sector of southern China in order to examine the influence of liquidity on technical efficiency. It also investigate the role of firm size, monetary incentive, export and types of ownership in generating efficiency. Employing Data Envelopment Analysis, this paper first estimates the technical efficiency of textile firms in southern China. A Tobit model is then applied to study the effects on efficiency of liquidity. The empirical examination is carried out on a sample of top 279 textiles firms in Guangdong province of China. Our empirical results suggest that firms with a relatively high liquid fund will perform more efficiently, and most Chinese textile firms suffer more from insufficient funds rather than exerting internal funds inefficiently. In addition, other potential factors such as the positive role of firm size and monetary incentive, and the negative role of export-orientedness also influence the firms' technical efficiency. Foreign-invested textile firms in comparison to local-funded firms are found to have no obvious advantages in technical efficiency.