The impact of financialization on future development of real enterprises’ core businesses: promotion or suppression

DU Yong1 ZHANG Huan2 CHEN Jianying2

(1.Faculty of Accounting, College of Economics and Management, Southwest University 400715)
(2.College of Economics and Management, Southwest University 400715)

【Abstract】Based on the hot topic of the virtualization of current real economy, this paper investigates the influence of financialization on future core performance for entity enterprises. Theoretically, there exists two kinds of effect on entity enterprises, one is “reservoir” effect, and the other one is “crowding out” effect. The net effect of financialization on core business for entity enterprises is determined by relative magnitude between “reservoir” effect and “crowding out” effect. We use data of listed companies between 2008 and 2014 in China, and use the company’s balance sheet data to construct micro financialization indexes. We find that financialization of entity enterprises damages the future core performance, and reveals that the magnitude of “crowding out” effect is larger than the magnitude of “reservoir” effect. Furthermore, the effect of financialization is stronger during the period of loose monetary policy, and the financial ecological environment weakens the negative effect of financialization on the future core performance. The path test shows that financial asset does not play a role of “reservoir” to ease future under-investment. On the contrary, we find that financialization crowds out innovation output and physical investment. Meanwhile, the decrease of innovation output and physical investment is the intermediary factor that financialization exerts influence on the future core performance. Finally, we find that the negative effect of financialization is larger in SOEs, compared to Non-SOEs. This study provides empirical evidence for influence of financialization on the real economy at the micro level, and also provides some reference for guiding funds to real economy.

【Keywords】 financialization of entity enterprises; future core performance; monetary policy; financial ecological environment;

【DOI】

【Funds】 General Project of National Natural Science Foundation of China (71572153) Major Cultivation Project of Humanities and Social Sciences at Southwest University (15XDSKZD005) Special Fund Project and Major Cultivation Project of the Fundamental Research Funds for the Central Universities (SWU1709201)

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    Footnote

    [1]. ① Studies on financialization stemed from the discussion on the relationship between finance and production in radical political economy. Afterwards, scholars have elaborated and extended their research from different perspectives. The definition by Krippner (2005) has been widely accepted. He defined that financialization refers to the acquisition of profits mainly through financial channels rather than trade and commodity production. The financialization researched by this paper mainly refers to the behavior that an entity enterprise allocates funds to financial assets which feature high degree of virtualization (Demir, 2009). [^Back]

    [2]. ① Source: the official website of China Securities Regulatory Commission (http://www.csrc.gov.cn). [^Back]

    [3]. ② Source: http://www.csrc.gov.cn/pub/newsite/fxjgb/gzdt/201702/t20170217_312366.html. [^Back]

    [4]. ① To keep the paper reasonably concise, for the specific definition of control variables, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org) [^Back]

    [5]. ① To keep the paper reasonably concise, for the correlation analysis results and descriptive statistics, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org) [^Back]

    [6]. ① To keep the paper reasonably concise, for the test results of the differences between groups, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org) [^Back]

    [7]. ① To keep the paper reasonably concise, for the specific results of the robustness test, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org) [^Back]

    [8]. ① To keep the paper reasonably concise, this paper does not elaborate the test results whose explained variable is CorePerf2t + 1, for details, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org). When the explained variable is CorePerf2t + 1, the Z statistics in the Sobel test all pass the significance test at the level of 1%, and the proportions of the mediating effect are 11.95%, 10.82% and 6.65% respectively. [^Back]

    [9]. ① To keep the paper reasonably concise, for detailed test results, see the open appendixes on the website of China Industrial Economics (http://www.ciejournal.org) [^Back]

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 12, Pages 113-131

December 2017

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Article Outline

Abstract

  • 1 Introduction
  • 2 Theoretical analysis and hypotheses proposed
  • 3 Research design
  • 4 Empirical results
  • 5 Mechanism test
  • 6 Supplementary test: considering the nature of property rights
  • 7 Research conclusions and implications
  • Footnote

    References