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Does Financial Constraints Impede Technical Efficiency Improvement?
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TitleDoes Financial Constraints Impede Technical Efficiency Improvement?  
AuthorChen Haiqiang, Han Qian, and Wu Kai  
OrganizationThe Wang Yanan Institute for Studies in Economics, Xiamen University;; 
Key WordsTechnical Efficiency; Financial Constraint; Investment-Cash Flow Sensitivity; Stochastic Frontiers 
AbstractThis paper applies Wang (2010) fixed effect panel data stochastic frontier model with China' manufacturing listed firms in 2004-2009 to study the impact of financial constraint on technical efficiency, and thus provide new empirical evidences for the financial constraint and productivity literatures at the firm level. We find that for both the traditional measure of financial constraint (firm size, leverage and firm age) and the new measurement estimated from investment-cash flow model, financial constraint significantly impedes the technical efficiency improvement. Using the introduction of short- term bond as a natural experiment to tackle endogeneity problem, the conclusion remain unchanged. In addition, compared to state owned enterprises, the relief of financial constraint plays larger positive roles in raising technical efficiency for private firms. Therefore, this paper has definite policy implication that a more effective credit market should be reinforced to alleviate financial constraint condition and lay solid foundation for improving productivity in China. 
Serial NumberWP377 
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