The nonlinear impact of corporate financialization on total factor productivity

This study examines the nonlinear impact of corporate financialization on total factor productivity (TFP) using a large panel of Chinese listed firms from 2008 to 2024. By incorporating higher-order terms of financialization, the analysis identifies a clear inverted N-shaped relationship, indicating that financialization generates liquidity benefits at low levels, imposes crowding-out and speculative distortions at moderate levels, and partly restores productivity when financial engagement becomes excessively high. Mechanism analysis reveals that industry-level financialization encourages firms to increase R&D investment, yet R&D exerts a negative short-term effect on productivity, forming a partial but meaningful mediating channel. Heterogeneity tests show that the nonlinear pattern is more pronounced among small firms and state-owned enterprises, while medium-sized and non-state-owned firms exhibit weaker responses. The findings highlight the multi-stage nature of financialization’s real effects and underscore the importance of balanced financial asset allocation. This study contributes to the literature by providing comprehensive evidence on how financialization, innovation behavior, and firm characteristics jointly shape productivity outcomes in emerging markets, offering new insights for corporate financial strategy and financial regulatory policy.