THE RELATIONSHIP BETWEEN FINANCIAL PERFORMANCE AND TOTAL FACTOR PRODUCTIVITY: EVIDENCE FROM THE CZECH AGRICULTURAL SECTOR

Year 2014, Volume: 6 Issue: 2, 57 - 67, 01.12.2014

Ondřej Machek

Abstract

Agriculture is an important sector of the economy which is often monitored by the government and which is often subject of international disputes. Given the importance of this sector, it is necessary to measure its performance. In this article, we calculated and compared the development of two measures of performance of the agricultural sector of the Czech Republic: the total factor productivity measured by the Fisher index of productivity, and the financial performance measured by three profitability ratios: return on equity, return on assets and return on sales. It is considered that productivity and financial performance do not necessarily move in the same direction. However, we observed a connection between these measures and suggested that this dependence is due to the data interrelatedness. We suggest that total factor productivity, when measured by monetary aggregates such as value added, will be positively correlated to the financial profitability ratios when measured on the basis of the same data. However, for the Czech sector, data are not available due to the transition from the centrally-planned economy to the market economy in 1989 and a turbulent development since that time

Keywords

Total Factor Productivity, Financial Performance, Agriculture

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