IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v57y2023ics1544612323006013.html
   My bibliography  Save this article

Corporate digital transformation and financialization: Evidence from Chinese listed firms

Author

Listed:
  • Wu, Kai
  • Lu, Yufei

Abstract

We examine the relationship between digital transformation and corporate financialization using Chinese-listed firms from 2007 to 2021. Results show that digital transformation facilitates corporate financialization, and this positive relationship is pronounced among firms with high agency costs and low institutional ownership. We find that the profit-chasing motive for financialization is the predominant driving force. To verify the motivation, we find that risk-taking behaviors and the yield spreads between financial and tangible assets increase along with the digital transformation. To avoid excessive financialization, corporate managers and regulatory agencies should strengthen their corporate governance under digital transformation.

Suggested Citation

  • Wu, Kai & Lu, Yufei, 2023. "Corporate digital transformation and financialization: Evidence from Chinese listed firms," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006013
    DOI: 10.1016/j.frl.2023.104229
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323006013
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.104229?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Eller, Robert & Alford, Philip & Kallmünzer, Andreas & Peters, Mike, 2020. "Antecedents, consequences, and challenges of small and medium-sized enterprise digitalization," Journal of Business Research, Elsevier, vol. 112(C), pages 119-127.
    2. Xu, Nuo & Gao, Yubin & Du, Lizhen & You, Liang, 2023. "Does administrative monopoly regulation affect corporate financialization? From the perspective of vertical industrial chain competition in China," Finance Research Letters, Elsevier, vol. 53(C).
    3. Hou, Qingsong & Tang, Xiaofang & Teng, Min, 2021. "Labor costs and financialization of real sectors in emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    4. Elyasiani, Elyas & Jia, Jingyi (Jane) & Mao, Connie X., 2010. "Institutional ownership stability and the cost of debt," Journal of Financial Markets, Elsevier, vol. 13(4), pages 475-500, November.
    5. Tang, Huoqing & Zhang, Chengsi, 2019. "Investment risk, return gap, and financialization of non-listed non-financial firms in China⁎," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    6. Zhang, Qiuyue & Que, Jiangjing & Qin, Xiuting, 2023. "Regional financial technology and shadow banking activities of non-financial firms: Evidence from China," Journal of Asian Economics, Elsevier, vol. 86(C).
    7. Kohtamäki, Marko & Parida, Vinit & Patel, Pankaj C. & Gebauer, Heiko, 2020. "The relationship between digitalization and servitization: The role of servitization in capturing the financial potential of digitalization," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    8. Hess, Thomas & Matt, Christian & Benlian, Alexander & Wiesböck, Florian, 2016. "Options for Formulating a Digital Transformation Strategy," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81032, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    9. Zhang, Wenzhe & Liu, Guangqiang, 2023. "Digitalization and firm centralization: A quasi-natural experiment based on the “Broadband China” policy," Finance Research Letters, Elsevier, vol. 52(C).
    10. Zhong, Huaming & Al-Duais, Zinb Abduljabbar Mohamed & Peng, Biyu, 2023. "The impact of idiosyncratic risk on corporate financialisation——Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    11. Ma, Sichao & Shen, Ji & Wang, Fanzhi & Wu, Wanting, 2022. "A tale of two Us: Corporate leverage and financial asset allocation in China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    12. Si, Deng-Kui & Wan, Shen & Li, Xiao-Lin & Kong, Dongmin, 2022. "Economic policy uncertainty and shadow banking: Firm-level evidence from China," Research in International Business and Finance, Elsevier, vol. 63(C).
    13. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December.
    14. Zhang, Chuan & Liu, Lixia, 2023. "Corporate inventory and cash holdings in digital economy strategy: Evidence from China," Finance Research Letters, Elsevier, vol. 53(C).
    15. Li, Xing & Shen, Guangjun, 2023. "Tax incentives and the financialization of the real sector: Evidence from the accelerated depreciation policy in China," Finance Research Letters, Elsevier, vol. 51(C).
    16. Huang, Jialin & Luo, Yu & Peng, Yuchao, 2021. "Corporate financial asset holdings under economic policy uncertainty: Precautionary saving or speculating?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1359-1378.
    17. Feng, Yumei & Yu, Qiang & Nan, Xingheng & Cai, Yongbin, 2022. "Can employee stock ownership plans reduce corporate financialization? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 140-151.
    18. Jiang, Fuxiu & Shen, Yanyan & Cai, Xinni, 2022. "Can multiple blockholders restrain corporate financialization?," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    19. Du, Julan & Li, Chang & Wang, Yongqin, 2023. "Shadow banking of non-financial firms: Arbitrage between formal and informal credit markets in China," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    20. Liu, Xing & Liu, Fengzhong, 2022. "Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China," Finance Research Letters, Elsevier, vol. 47(PA).
    21. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    22. Zhou, Zhongsheng & Li, Zhuo, 2023. "Corporate digital transformation and trade credit financing," Journal of Business Research, Elsevier, vol. 160(C).
    23. Xu, Xingmei & Xuan, Chao, 2021. "A study on the motivation of financialization in emerging markets: The case of Chinese nonfinancial corporations," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 606-623.
    24. Kun Su & Yue Lu, 2023. "The impact of corporate social responsibility on corporate financialization," The European Journal of Finance, Taylor & Francis Journals, vol. 29(17), pages 2047-2073, November.
    25. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    26. 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).
    27. Aibai, Abuduwali & Peng, Yuchao & Shen, Peiyi & Xu, Hongmei, 2022. "Can local policy uncertainty curtail corporate speculation on financial assets?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    28. DemIr, FIrat, 2009. "Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets: Private Investment and Cash Flow Relationship Revisited," World Development, Elsevier, vol. 37(5), pages 953-964, May.
    29. Zhang, Zhengyi & Jin, Jun & Li, Shijing & Zhang, Yuanmin, 2023. "Digital transformation of incumbent firms from the perspective of portfolios of innovation," Technology in Society, Elsevier, vol. 72(C).
    30. Gao, Haoyu & Wen, Huiyu & Wang, Xingjian, 2022. "Pandemic effect on corporate financial asset holdings: Precautionary or return-chasing?," Research in International Business and Finance, Elsevier, vol. 62(C).
    31. Tian, Guangning & Li, Bo & Cheng, Yue, 2022. "Does digital transformation matter for corporate risk-taking?," Finance Research Letters, Elsevier, vol. 49(C).
    32. Xin Su & Shengshi Zhou & Rui Xue & Jinfang Tian, 2020. "Does economic policy uncertainty raise corporate precautionary cash holdings? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4567-4592, December.
    33. Wei Cao & Chunhua Chen & Dequan Jiang & Weiping Li & Ying Zhang, 2022. "Industrial policy and non-financial corporations’ financialization: evidence from China," The European Journal of Finance, Taylor & Francis Journals, vol. 28(4-5), pages 397-415, March.
    34. Hess, Thomas & Matt, Christian & Benlian, Alexander & Wiesböck, Florian, 2016. "Options for Formulating a Digital Transformation Strategy," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 82423, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    35. Faccio, Mara & Marchica, Maria-Teresa & Mura, Roberto, 2016. "CEO gender, corporate risk-taking, and the efficiency of capital allocation," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 193-209.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shuxia Zhang & Xiangyang Yin & Liping Xu & Ziyu Li & Deyue Kong, 2022. "Effect of Environmental, Social, and Governance Performance on Corporate Financialization: Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    2. Changling Sun & Ziang Lin & Marek Vochozka & Zuzana Vincúrová, 2022. "Digital transformation and corporate cash holdings in China’s A-share listed companies," Oeconomia Copernicana, Institute of Economic Research, vol. 13(4), pages 1081-1116, December.
    3. Schubert, Torben & Ashouri, Sajad & Deschryvere, Matthias & Jäger, Angela & Visentin, Fabiana & Cunningham, Scott & Hajikhani, Arash & Pukelis, Lukas & Suominen, Arho, 2023. "The role of product digitization for productivity," MERIT Working Papers 2023-004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Zhang, Ziqi & Su, Zhi & Tong, Fang, 2023. "Does digital transformation restrain corporate financialization? Evidence from China," Finance Research Letters, Elsevier, vol. 56(C).
    5. Huang, Jin & Jin, Yong & Duan, Yang & She, Yanling, 2023. "Do Chinese firms speculate during high economic policy uncertainty? Evidence from wealth management products," International Review of Financial Analysis, Elsevier, vol. 87(C).
    6. Yuanxi Yang & Jingxian Guo, 2022. "Can Supplier Concentration Improve Corporate Risk Taking? Moderating Effects of Digital Transformation," Sustainability, MDPI, vol. 14(18), pages 1-15, September.
    7. Maha Shehadeh & Ahmad Almohtaseb & Jehad Aldehayyat & Ibrahim A. Abu-AlSondos, 2023. "Digital Transformation and Competitive Advantage in the Service Sector: A Moderated-Mediation Model," Sustainability, MDPI, vol. 15(3), pages 1-21, January.
    8. Chouaibi, Salim & Festa, Giuseppe & Quaglia, Roberto & Rossi, Matteo, 2022. "The risky impact of digital transformation on organizational performance – evidence from Tunisia," Technological Forecasting and Social Change, Elsevier, vol. 178(C).
    9. Han, Haozhe & Wang, Xingjian, 2023. "Monetary policy uncertainty and corporate cash holdings: Evidence from China," Journal of Financial Stability, Elsevier, vol. 67(C).
    10. Blanka, Christine & Krumay, Barbara & Rueckel, David, 2022. "The interplay of digital transformation and employee competency: A design science approach," Technological Forecasting and Social Change, Elsevier, vol. 178(C).
    11. Xin Zhang & Yaoyu Xu & Liang Ma, 2022. "Research on Successful Factors and Influencing Mechanism of the Digital Transformation in SMEs," Sustainability, MDPI, vol. 14(5), pages 1-18, February.
    12. Chun-Liang Chen & Yao-Chin Lin & Wei-Hung Chen & Cheng-Fu Chao & Henry Pandia, 2021. "Role of Government to Enhance Digital Transformation in Small Service Business," Sustainability, MDPI, vol. 13(3), pages 1-24, January.
    13. Xie, Yu & Chen, Zhen & Boadu, Francis & Tang, HongJuan, 2022. "How does digital transformation affect agricultural enterprises’ pro-land behavior: The role of environmental protection cognition and cross-border search," Technology in Society, Elsevier, vol. 70(C).
    14. Li, Xing & Shen, Guangjun, 2023. "Do tax incentives decelerate corporate financialization? Evidence from the VAT reform in China," Economic Modelling, Elsevier, vol. 125(C).
    15. Miehé, Lucas & Palmié, Maximilian & Oghazi, Pejvak, 2023. "Connection successfully established: How complementors use connectivity technologies to join existing ecosystems – Four archetype strategies from the mobility sector," Technovation, Elsevier, vol. 122(C).
    16. Chwiłkowska-Kubala, Anna & Cyfert, Szymon & Malewska, Kamila & Mierzejewska, Katarzyna & Szumowski, Witold, 2023. "The impact of resources on digital transformation in energy sector companies. The role of readiness for digital transformation," Technology in Society, Elsevier, vol. 74(C).
    17. Yu, Honglan & Fletcher, Margaret & Buck, Trevor, 2022. "Managing digital transformation during re-internationalization: Trajectories and implications for performance," Journal of International Management, Elsevier, vol. 28(4).
    18. Ma, Sichao & Shen, Ji & Wang, Fanzhi & Wu, Wanting, 2022. "A tale of two Us: Corporate leverage and financial asset allocation in China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    19. Liu, Xing & Liu, Fengzhong, 2022. "Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China," Finance Research Letters, Elsevier, vol. 47(PA).
    20. Siachou, Evangelia & Vrontis, Demetris & Trichina, Eleni, 2021. "Can traditional organizations be digitally transformed by themselves? The moderating role of absorptive capacity and strategic interdependence," Journal of Business Research, Elsevier, vol. 124(C), pages 408-421.

    More about this item

    Keywords

    Digital transformation; Corporate financialization; Profit-chasing;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.