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Diversification and financialization of non-financial corporations: Evidence from China

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  • Feng, Yumei
  • Yao, Shouyu
  • Wang, Chunfeng
  • Liao, Jing
  • Cheng, Feiyang

Abstract

This paper examines whether and how business diversification affects financialization in non-financial corporations. Using data from the Chinese market, we find that business diversification strategy will significantly increase non-financial corporations' investment in financial assets. Furthermore, exacerbated agency problems, increased investment inefficiency and high operational risk are found to be the consequences of business diversification, which induce companies to hold high-risk financial assets. The impact of business diversification on financial investment is stronger in small-cap firms, SOEs, and firms with weak monitoring mechanisms. Finally, the diversification effect on corporate financialization is more significant where regional economic development and regulatory environment is weak.

Suggested Citation

  • Feng, Yumei & Yao, Shouyu & Wang, Chunfeng & Liao, Jing & Cheng, Feiyang, 2022. "Diversification and financialization of non-financial corporations: Evidence from China," Emerging Markets Review, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ememar:v:50:y:2022:i:c:s156601412100042x
    DOI: 10.1016/j.ememar.2021.100834
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