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When the bordering levee breaks: The impact of floods on corporate financialization in China

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  • Wu, Ziqing
  • Chen, Leyi
  • Shi, Lingpeng

Abstract

This paper investigates the impact of floods on corporate financialization in China. We find that flood shocks significantly increase corporate financialization by firms in non-disaster areas within the same prefecture-level city. Mechanism analysis shows that lower financing costs and expanded financing sizes are the main drivers. This suggests that local governments reallocate resources to support unaffected regions during adverse shocks, yet part of this support is channeled into financial assets rather than productive investments. Further analysis indicates that this effect is more pronounced with the severity of floods and for large firms. Our findings reveal a critical unintended consequence of government intervention in disaster response, highlighting the need for policy designs that guard against such financial resource misallocation. This study enriches our understanding of how adverse shocks affect corporate financial strategies.

Suggested Citation

  • Wu, Ziqing & Chen, Leyi & Shi, Lingpeng, 2026. "When the bordering levee breaks: The impact of floods on corporate financialization in China," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325004274
    DOI: 10.1016/j.econmod.2025.107432
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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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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