Corporate Leverage Ratio and Total Factor Productivity: Promotion or Inhibition? Empirical Evidence of the Role of Shareholding Concentration

Abstract

In the context of China’s high-quality economic development, enhancing Total Factor Productivity (TFP) is of great importance. Employing data from 799 non-financial companies listed on the Shanghai and Shenzhen main boards from 2007 to 2024, this study investigates the impact of corporate leverage ratio on TFP and its underlying mechanism. Using fixed-effects models and mediation effect tests, we find that leverage significantly promotes TFP. Shareholding concentration plays a partial mediating role between leverage and TFP, though its indirect effect is negative. These results remain robust after estimating TFP using both the Olley-Pakes and Levinsohn-Petrin methods, as well as multiple robustness checks. The study suggests that moderate leverage helps alleviate financing constraints and supports innovation, yet excessive ownership concentration may inhibit governance efficiency. It is advised to optimise ownership structure while pursuing deleveraging, so as to enhance TFP and achieve sustainable growth