In the context of innovation-driven development, the reform of capital marketization can help improve the efficiency of capital allocation, which in turn has an impact on total factor productivity.Based on the relevant data of cities in China, this paper uses the production function method and the stochastic frontier estimation method to measure capital market distortions, and uses the DEA-Malmquist index method to decompose total factor productivity. From the perspective of scale and technology, this paper empirically analyzes the effects of capital market distortions on urban scale efficiency, technical efficiency and total factor productivity.The study finds that the increase in capital market distortion has a positive effect on the scale efficiency, and has a negative effect on technical efficiency and total factor productivity.The results of counterfactual analysis show that when capital market distortions are eliminated, at the national level, scale efficiency will drop by nearly 0.54% on average, technical efficiency will rise by nearly 4.25% on average, and total factor productivity will rise by nearly 1.54% on average.