De-financialization and enterprise innovation: Quasi-natural experimental evidence from China's real estate regulation

Corporate financialization raises risks, weakens core business, and hinders growth, making it crucial to study de-financialization's effects on high-quality development. This paper examines the impact of de-financialization on enterprise innovation by employing a real estate regulation shock in China. We construct the Difference-in-Differences (DID) analysis framework based on the panel data from listed Chinese companies between 2012 and 2018 which isolates the analysis from post-2019 policy shifts and industry-specific shocks in China's housing sector. Our results show that China's 2015 real estate regulation curbed corporate speculation motives, leading enterprises holding investment properties to significantly increase R&D investment. The innovation boost primarily stems from corporate divestment of real estate holdings, validating the 'investment substitution' theory of financialization and confirming real estate's crowding-out effect on productive investments. At the local government level, such regulation weakened fiscal reliance on land sales, accelerating regional transitions toward innovation-driven growth models. Heterogeneity analysis further indicates that, on the one hand, state-owned enterprises (SOEs) exhibited marked innovation gains due to policy sensitivity, contrasting with private firms' stagnation; on the other hand, regions with higher policy responsiveness and credibility achieved stronger regulatory implementation and innovation outcomes. We provide empirical evidence on the consequences of financialization and provides policy insights for advancing the high-quality development of real-economy enterprises.