How does supply chain finance reshape total factor productivity of enterprises

Abstract

This study uses a large sample, including 27,205 company-year data of A-share manufacturing enterprises in China from 2005 to 2024, to examine the impact of supply chain finance (SCF) on total factor productivity (TFP). Methodologically, we quantify the development level of SCF by analyzing the text content of the company’s annual report, and calculate TFP by OP method. In order to deal with the possible endogenous problems, we use two-way fixed effect model and two-stage least squares (2SLS) tool variable method. The empirical results show that SCF can obviously improve TFP. From the economic point of view, TFP can increase by 0.4% on average for every standard deviation of SCF. Mechanism tests tells us that SCF mainly helps TFP growth by making better use of the company’s working capital, such as reducing the occupied working capital and making inventory turnover faster. However, the operating expense ratio will greatly weaken this good effect, which is an important restrictive condition. Heterogeneity tests also found that this effect of improving production efficiency is more obvious in non-high-tech companies, polluting companies and non-state-owned enterprises. This study provides solid evidence and accurate suggestions for us to optimize resource allocation and guide the strategic development of supply chain finance.