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

• Main Author: Ondřej Machek
• Format: Article
• Language: English
• Published: Social Sciences Research Society 2014-07-01
• Series: International Journal of Social Sciences and Humanity Studies
• Online Access: http://www.sobiad.org/ejournals/journal_IJSS/arhieves/IJSS-2014_2/Ondrej-Mac.pdf

Agriculture is an important sector of the economy which is often monitored by thegovernment and which is often subject of international disputes. Given theimportance of this sector, it is necessary to measure its performance. In thisarticle, we calculated and compared the developmentof two measures ofperformance of the agricultural sector of the CzechRepublic: the total factorproductivity measured by the Fisher index of productivity, and the financialperformance measured by three profitability ratios:return on equity, return onassets and return on sales. It is considered that productivity and financialperformance do not necessarily move in the same direction. However, weobserved a connection between these measures and suggested that thisdependence is due to the data interrelatedness. Wesuggest that total factorproductivity, when measured by monetary aggregatessuch as value added, will bepositively correlated to the financial profitability ratios when measured on thebasis of the same data. However, for the Czech sector, data are not available dueto the transition from the centrally-planned economy to the market economy in1989 and a turbulent development since that time.