Does demolition compensation stimulate household allocation of financial assets

As a unique wealth transfer approach, demolition compensation (Compen) directly modifies households’ wealth foundations and exerts an influence on their investment behaviors and risk appetites. This study establishes an empirical model that includes moderating effects and uses the CHFS data to examine the manner in which demolition compensation impacts household financial assets allocation decisions. The results show that demolition compensation promotes the allocation of household financial assets (Fin), especially a greater preference for risky financial assets such as stocks. Household financial knowledge plays a moderating role in this. This facilitating effect is more pronounced in the central region and among urban households. The contributions of this study are threefold. First, we theoretically define demolition compensation as a kind of economic rent, not only arguing that it has the nature of a Ricardian rent, but it also explains the mechanisms by which psychological accounts, wealth loss expectations, loss aversion, and other characteristics impact the effect of demolition compensation on households’ financial asset choices by applying the basic principles of behavioral finance. Second, this study tests the specific impacts of demolition compensation on household financial asset allocation. Third, we consider the impact of financial literacy, constructing a model to reveal the mechanism of demolition compensation on household financial asset choices.