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Venture capital and corporate financialization: Evidence from China

Author

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  • Xie, Hongji
  • Tian, Cunzhi
  • Pang, Fangying

Abstract

We examine whether and how venture capital investors (VCs) affect corporate financialization in post-IPO stages using China’s A-share non-financial listed firms from 2007 to 2019. We find that the presence of VCs reduces the level of corporate financialization. The negative relationship is more pronounced in VCs with private ownership and portfolio firms with poor corporate governance. Further evidence shows that the negative effect of VCs on corporate financialization is driven by VCs through stronger corporate governance engagement, indicating a monitoring channel. We also find that VCs exhibit a high level of failure tolerance and innovation promotion by decreasing the sensitivity of CEO turnover to compensation performance, and promoting R&D investment in firms with a stronger arbitrage incentive, suggesting another innovation channel.

Suggested Citation

  • Xie, Hongji & Tian, Cunzhi & Pang, Fangying, 2024. "Venture capital and corporate financialization: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 119-136.
    • Handle: RePEc:eee:quaeco:v:93:y:2024:i:c:p:119-136
    DOI: 10.1016/j.qref.2023.12.002
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    More about this item

    Keywords

    Venture capital; Managerial myopia; Financialization; Non-financial enterprises;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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