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The role of network centrality in firm financialization: Evidence from China

Author

Listed:
  • Qiu, Xuemei
  • Zhan, Leni
  • Yan, Zehao
  • Zhang, Xuehua

Abstract

This paper examines how firm network centrality drives financialization among Chinese A-share listed firms from 2007 to 2023. China's "from the real to the virtual" problem has attracted considerable regulatory attention, yet the role of informal social networks in sustaining financialization remains underexplored. Constructing a composite network that integrates executive interlocks and cross-shareholding ties, we find that network centrality significantly promotes financialization. This effect operates through two channels: exacerbating agency conflicts and increasing risk-taking. It is more pronounced in state-owned firms, non-manufacturing firms, and the pre-market reform period. We further show that composite networks exert a stronger influence than single-layer networks, suggesting a superimposed effect. These findings highlight the need for regulators to complement financial oversight with social network governance mechanisms to guide capital back to the real economy.

Suggested Citation

  • Qiu, Xuemei & Zhan, Leni & Yan, Zehao & Zhang, Xuehua, 2026. "The role of network centrality in firm financialization: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 92(C), pages 684-701.
    • Handle: RePEc:eee:ecanpo:v:92:y:2026:i:c:p:684-701
    DOI: 10.1016/j.eap.2026.06.037
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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