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Financialization and sluggish fixed investment in Chinese real sector firms

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  • Shu, Jiaxian
  • Zhang, Chengsi
  • Zheng, Ning

Abstract

China's economy has been slowing down over the past decade since 2007, with real investment posting obviously sluggish growth, in contrast to a rising trend of financialization in non-financial firms. Using firm-level panel data, this paper examines the impacts of firms' financialization on real investment in China with an extended portfolio choice model. Empirical results show that firms' financialization has an economically and statistically significant reducing effect on their real investment. Unlike the existing literature, however, we find that the return gap between real and financial investments plays a limited role in affecting real investment.

Suggested Citation

  • Shu, Jiaxian & Zhang, Chengsi & Zheng, Ning, 2020. "Financialization and sluggish fixed investment in Chinese real sector firms," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1106-1116.
  • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:1106-1116
    DOI: 10.1016/j.iref.2018.12.008
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    Cited by:

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    3. Mingjin Luo & Shenqguan Wang, 2023. "Financialization and sluggish recovery of firms' investment: Global evidence from the 2007–2008 financial crisis," International Finance, Wiley Blackwell, vol. 26(3), pages 344-363, December.
    4. Liu, Xing & Liu, Fengzhong, 2022. "Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China," Finance Research Letters, Elsevier, vol. 47(PA).
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    6. Feng, Yumei & Yao, Shouyu & Wang, Chunfeng & Liao, Jing & Cheng, Feiyang, 2022. "Diversification and financialization of non-financial corporations: Evidence from China," Emerging Markets Review, Elsevier, vol. 50(C).
    7. Xue, Lixing & Chen, Chong & Wang, Na & Zhang, Lirong, 2023. "Gambling culture and corporate financialization: Evidence from China's welfare lottery sales," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    8. Fei Nie & Jian Li & Xiaoli Etienne & Gucheng Li, 2023. "Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(2), pages 112-136, March.
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    More about this item

    Keywords

    Financialization; Fixed investment; Real sector; Chinese economy;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D2 - Microeconomics - - Production and Organizations
    • G2 - Financial Economics - - Financial Institutions and Services

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