Strengthening Financial Regulation and Total Factor Productivity in China

Abstract

In the context of China's economic transition, total factor productivity (TFP) serves as a metric for assessing industry upgrading and economic performance enhancement. This analysis explores the approach to mitigating financial discrepancies while fostering economic growth within a capitalist market framework. The influence of robust financial regulation on total factor productivity is analyzed. The empirical section uses the generalized double-difference method and a fixed-effects regression model to look at panel data from 3,201 publicly traded companies from 2013 to 2023. Analysis through multiple regressions and hypothesis tests reveals that financial regulation substantially enhances total factor productivity. It explains how strong financial regulation affects total factor productivity by looking at things like corporate risk-taking, the cost of debt financing, the level of innovation, and the share of R&D investments made in financial assets. Strict financial rules have a greater impact on total factor productivity in the eastern region, according to homogeneity analysis. Private companies, companies with much financial knowledge, businesses lacking sufficient accounting data, and businesses unable to obtain sufficient funds notably fit this criterion. It's time for the first small-scale evidence from China about how financial development varies between countries. It's also time to talk about the real economic effects of strict financial control, the benefits of reorganizing the financial regulatory framework, and important policy suggestions for improving high-quality real economic growth.

Keywords: Strong financial regulation, Asset Management Regulations, Total Factor Productivity, Chinese economy