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Does economic financialization lead to the alienation of enterprise investment behavior? Evidence from China

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  • Zheng, Zhong-Liang
  • Gao, Xiang
  • Ruan, Xing-Liang

Abstract

This study investigates the squeeze effect of economic financialization on capital accumulation under the background of deepening financial trend in China. Using the dataset of listed companies in China’s manufacturing industry from 2007 to 2016, we find that economic financialization leads to the alienation of enterprises’ investment behavior. With the economic financialization deepening, companies will invest more in financial assets than in productive assets. The reason is that as expenditure in firm dividend, and profit or borrowing interests is growing, the share of their income from the financial assets is steadily increasing. We also find that the effect varies with companies size: the smaller the size of the enterprises, the stronger squeeze effect of economic financialization on capital accumulation.

Suggested Citation

  • Zheng, Zhong-Liang & Gao, Xiang & Ruan, Xing-Liang, 2019. "Does economic financialization lead to the alienation of enterprise investment behavior? Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    • Handle: RePEc:eee:phsmap:v:536:y:2019:i:c:s0378437119304601
    DOI: 10.1016/j.physa.2019.04.094
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    References listed on IDEAS

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    1. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
    2. Lazonick William, 2009. "The New Economy Business Model and the Crisis of U.S. Capitalism," Capitalism and Society, De Gruyter, vol. 4(2), pages 1-70, October.
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    Cited by:

    1. Wang, Delu & Mao, Jinqi & Cui, Rong & Yu, Jian & Shi, Xunpeng, 2022. "Impact of inter-provincial power resource allocation on enterprise production behavior from a multi-scale correlation perspective," Energy Economics, Elsevier, vol. 114(C).
    2. Zhengjuan Xie & Jiang Du & Yongchao Wu, 2022. "Does financialization of non-financial corporations promote the persistence of innovation: evidence from A-share listed manufacturing corporations in China," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 229-250, June.
    3. Shromona Ganguly, 2021. "Financialization of the Real Economy: New Empirical Evidence from the Non-financial Firms in India Using Conditional Logistic Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 493-523, September.
    4. Wang, Lixia & Hao, Neng & Fang, Hui & Wu, Maoguo & Ma, Xinlei, 2023. "A model for measuring over-financialization: Evidence from Chinese companies," Finance Research Letters, Elsevier, vol. 51(C).
    5. Peng Hou & Mengting Zhou & Jiaqi Xu & Yue Liu, 2021. "Financialization, Government Subsidies, and Manufacturing R&D Investment: Evidence from Listed Companies in China," Sustainability, MDPI, vol. 13(22), pages 1-24, November.

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    More about this item

    Keywords

    Economic financialization; Investment behavior; Squeeze effect;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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