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A study on the motivation of financialization in emerging markets: The case of Chinese nonfinancial corporations

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  • Xu, Xingmei
  • Xuan, Chao

Abstract

Financialization of the economy is a widespread phenomenon of capital flowing between industries and the financial sector in China. This paper focuses on the relationship between financialization and future core business performance in Chinese listed companies that have been deeply involved in financialization activities over the past decades. It is shown that financialization quickly drags down the future core business performance of enterprises; this is evidenced by the crowding-out effect experienced by listed companies in China during the sample period. The financialization of enterprises has reduced their support for research and development expenditures and the number of patent applications and grants, which reduces a company’s core business growth potential and limits its future profitability. In order for the Chinese market to benefit as expected from the reservoir effect, China needs to guard against the excessive financialization of real enterprises. In the current stage of enterprise development, a high level of internal control can effectively alleviate financialization’s crowding-out effect, and a good macroeconomic environment is guaranteed to reduce the motivation of enterprise financialization as well as slow the financialization process.

Suggested Citation

  • Xu, Xingmei & Xuan, Chao, 2021. "A study on the motivation of financialization in emerging markets: The case of Chinese nonfinancial corporations," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 606-623.
    • Handle: RePEc:eee:reveco:v:72:y:2021:i:c:p:606-623
    DOI: 10.1016/j.iref.2020.12.026
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    References listed on IDEAS

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    Cited by:

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    3. Shuxia Zhang & Xiangyang Yin & Liping Xu & Ziyu Li & Deyue Kong, 2022. "Effect of Environmental, Social, and Governance Performance on Corporate Financialization: Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    4. Yang, Baochen & Chen, Fengrui, 2023. "The financialization of nonfinancial companies in China: A macroeconomic perspective," Finance Research Letters, Elsevier, vol. 53(C).
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    8. Hui Wang & Shu Xu, 2022. "Heterogeneity Effect of Corporate Financialization on Total Factor Productivity," Sustainability, MDPI, vol. 14(11), pages 1-17, May.
    9. Chengxue Yao & Fan Jiang & Liang Guo, 2023. "Fixed investment or financial assets investment: Evidence from political uncertainty in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 427-450, March.
    10. Enkeleda Lulaj & Blerta Dragusha & Eglantina Hysa, 2023. "Investigating Accounting Factors through Audited Financial Statements in Businesses toward a Circular Economy: Why a Sustainable Profit through Qualified Staff and Investment in Technology?," Administrative Sciences, MDPI, vol. 13(3), pages 1-28, March.
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    More about this item

    Keywords

    Financialization; Future core performance; Crowding-out effect; R&D expenditure;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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