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Main business profits at risk? Examining the financialization conundrum

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  • Hu, Guoheng
  • Li, Lixue
  • Liu, Shan
  • Wu, Guo

Abstract

We examine the impact of financialization on the profitability of firms’ main business activities and the role of monetary policy. Using evidence from Chinese A-share listed firms from 2008–2019, we reveal that financialization leads to a significant reduction in firms’ main business profits. The negative effect remains robust after testing for robustness and addressing endogenous concerns. We also find that expansionary monetary policy exacerbates this effect, and it is more pronounced when firms hold more short-term financial assets and in state-owned firms. Our findings suggest that enterprises shall strategically reassess investment priorities towards long-term operational sustainability and value creation, while mitigating excessive financialization tendencies.

Suggested Citation

  • Hu, Guoheng & Li, Lixue & Liu, Shan & Wu, Guo, 2024. "Main business profits at risk? Examining the financialization conundrum," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011644
    DOI: 10.1016/j.frl.2024.106135
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    More about this item

    Keywords

    Financialization; Main business profit; Monetary policy; Resource allocation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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