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Corporate governance, moral hazard, and financialization

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  • Liu, Zehao
  • Tang, Huoqing
  • Zhang, Chengsi

Abstract

Corporate governance, by mitigating managers' moral hazard problems and affecting firms' operational efficiency, significantly influences firms' allocation of funds between investing in internal projects and financial investments. We develop a model for how better corporate governance influences firms' financialization through increasing managerial efforts and suppressing extravagant consumption and tunneling behavior. We then manually collect data on China's non-financial firms' financialization including investing in entrusted loans and wealth management products (WMPs) to empirically test the effects of corporate governance. The results show that enhanced corporate governance can suppress non-financial firms' financialization.

Suggested Citation

  • Liu, Zehao & Tang, Huoqing & Zhang, Chengsi, 2023. "Corporate governance, moral hazard, and financialization," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 318-331.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:318-331
    DOI: 10.1016/j.iref.2023.06.042
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    References listed on IDEAS

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    Citations

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    Cited by:

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    7. Qi, Minhao & Liu, Yuxin & Hu, Changlong & Yang, Zhijiu, 2024. "The unintended consequence of environmental centralization: Evidence from firm financialization," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    8. Zhang, Xiaoliang & Zheng, Xiaojia, 2024. "Does carbon emission trading policy induce financialization of non-financial firms? Evidence from China," Energy Economics, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    Corporate governance; Moral hazard; Financialization; Chinese economy;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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