Abstract: What is the influence mechanism of total factor productivity (TFP) to improve enterprise’sperformance? This empirical research using CEES data shows that the loss coverage of the manufacturing enterprises in Guangdong province in 2014 is about 12.2%. The enterprises with lower loss coverage have the following characteristics: 11 to 15 years aged, medium- sized (the number of employees is 301 to 1000), private, with export behavior, non processing trade type, and belonging to the high technology enterprises．Basedon the OLS and Probit regression this paper verifies the”productivity market selection effect”, also finds thatthe improvement of total factor productivity can significantly promote the product quality upgrading, and product quality has a significant negative inhibition to business losses. Through endogenous test TFP, productquality and business losses have a significant causal effect. This conclusion provides some empirical evidencefor Chinese government to strengthen the supply side reform, and guide enterprises to reallocate resources byimproving TFP and product quality．
Key words: business losses; total factor productivity; product quality