Impact Of Corporate Cash Holdings On Total Factor Productivity
In the past, discussions on total factor productivity (TFP) usually centered on its impact on economic growth from the country-level perspective, which is an important topic in the macroeconomics field. However, only a limited number of studies examined how corporate financial decision impacts the TFP from the firm-level perspective. Specifically, no extant research investigated how the volume of corporate cash holdings affects firm productivity. The study examines the impact of cash holdings on the TFP from the corporate perspective. We find that the enterprise with higher cash holdings can enhance TFP. The results hold after accounting for the consideration of endogenous problems, financial constraints, financial crisis, corporate governance, quality of institutions, level of financial development, and various robustness tests. Furthermore, we examine whether enterprises will consistently invest their cash holdings into research and development (R&D) expenditures to boost firm productivity. The evidence indicates that the enterprises with higher cash holdings lead to steady increase in R&D expenditures, and hence positively improve their TFP.
Keywords- Total Factor Productivity, Cash Holdings, Firm Productivity.