Will Financialization of Enterprises Surely Crowd out Industrial Investment? An Empirical Analysis Based on China's A Share Non-Financial Listed Companies

Abstract

Abstract: The decline of industrial investment rate and the rise of financialization rate are the typical characteristics of the investment structure of the enterprises in China. An empirical study of China's A-share non-financial (including non-real-estate) listed companies from 2007 to 2018 conducted by this paper shows that the correlation effect of business financialization on industrial investment depends on certain conditions. From the perspective of the demand for investment funds, the stock of financialization will produce a“crowding out effect”on the current industrial investment, which mainly occurs in low-dividend distributing companies and is not sustainable. From the perspective of the supply of investment funds, the flow of financialization will produce a“reservoir effect”on the next period of industrial investment, which mainly occurs in high-dividend distributing companies. Therefore, enterprises should reasonably allocate the proportion of financial assets in the total assets to better play the “reservoir effect” of financial return on industrial investment. The government should encourage the flexible dividend distribution mode and enhance information disclosure, stimulate the enterprises' willingness for industrial investment, and meanwhile improve the pertinence and implementing efficiency of the financial reform and the monetary policy.

Key words: enterprises financialization, industrial investment, crowding-out effect, reservoir effect, financing constraint

CLC Number:

F275.1

YAN Wu, LI Ming-yu. Will Financialization of Enterprises Surely Crowd out Industrial Investment? An Empirical Analysis Based on China's A Share Non-Financial Listed Companies[J]. Contemporary Finance & Economics, 2020, 0(7): 63-74.

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