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Firm-level financialization: Contributing factors, sources, and economic consequences

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  • Huang, Bingbing
  • Cui, Yuying
  • Chan, Kam C.

Abstract

Using the ratio of risky financial assets to total assets to proxy for financialization, we examine the contributing factors, sources, and economic consequences of firm-level financialization in a sample of Chinese firms from 1998 to 2019. Our findings suggest that: 1) there is an increasing trend of firm-level financialization, 2) The increase in financialization is driven by an increase in a firm's increase in financial assets, 3) occasional cash flows, such as sales of assets, together with operating cash flows and cash flows from debt and equity are the sources of funding for financialization, and 4) the effect of financialization on a firm's performance, while negative, exhibits a U-shape non-linear effect. We show that financialization is a long-term trend, and it has a generally negative effect on firm performance.

Suggested Citation

  • Huang, Bingbing & Cui, Yuying & Chan, Kam C., 2022. "Firm-level financialization: Contributing factors, sources, and economic consequences," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1153-1162.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:1153-1162
    DOI: 10.1016/j.iref.2022.04.007
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    5. Zhao, Qi & Guo, Ming & Feng, Fangfang & Li, Junjun & Guan, Hangtian, 2024. "Path analysis of digital development on the green industrial transformation of Chinese resource-based enterprises," Resources Policy, Elsevier, vol. 93(C).
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    7. Wang, Hanying & Qi, Ju & Li, Zhuohua & Sensoy, Ahmet & Xing, Hongwei, 2024. "Excessive financialization and “Original Sin Theory”: Redemption from corporate reputation," Research in International Business and Finance, Elsevier, vol. 70(PA).
    8. Zhang, Mengtao & Li, Wenwen & Luo, Yalin & Chen, Wenchuan, 2023. "Government audit supervision, financialization, and executives' excess perks: Evidence from Chinese state-owned enterprises," International Review of Financial Analysis, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Financialization; Risky financial assets; Performance;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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