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Firm financialization: The role of policy inconsistency

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  • Yin, Libo
  • Zhang, Jier
  • Li, Ying

Abstract

This study develops a novel Chinese Policy Inconsistency Index (PICI) to examine its impact on firm financialization. Using the Latent Dirichlet Allocation (LDA) model, an advanced natural language processing technique, we measure policy inconsistency by tracking thematic shifts between consecutive months from four authoritative media. Panel regression results show that PICI enhance firm financialization, even after accounting for existing uncertainties. Further analysis reveals two main channels: reduced real investment and increased financial pressure. Finally, this firm financialization is driven by precautionary savings.

Suggested Citation

  • Yin, Libo & Zhang, Jier & Li, Ying, 2025. "Firm financialization: The role of policy inconsistency," Finance Research Letters, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finlet:v:80:y:2025:i:c:s1544612325006658
    DOI: 10.1016/j.frl.2025.107405
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