How do brick-and-mortar businesses leverage financial markets in China?

Brick-and-mortar businesses can be categorized into net financing and net investment types based on the diverse approaches they employ in financial markets, with these distinctions rooted in internal factors within the businesses themselves. Research indicates that brick-and-mortar businesses predominantly opt for a net financing approach when engaging with financial markets. Nevertheless, there is a diminishing trend in the proportion and scale of net financing-oriented companies, while those net investment-oriented companies are on the rise. Disparities exist in financial market utilization across industries, regions, and ownership structures. Companies experiencing high-performance volatility and minimal agency issues tend to favor net financing strategies, with performance volatility impacting the method of utilization by influencing free cash flow. Agency issues within businesses contribute to managerial self-interest, consequently influencing their preferred utilization method. This study introduces a novel micro perspective and quantitative approach to investigate the fundamental relationship between brick-and-mortar businesses and financial markets. It aids regulators in assessing the modes and extents of financial services provided to the real economy from a micro-enterprise standpoint. JEL Code: G1 G2 M2