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Corporate governance, moral hazard, and financialization

Author

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  • Liu, Zehao
  • Tang, Huoqing
  • Zhang, Chengsi

Abstract

Corporate governance, by mitigating managers' moral hazard problems and affecting firms' operational efficiency, significantly influences firms' allocation of funds between investing in internal projects and financial investments. We develop a model for how better corporate governance influences firms' financialization through increasing managerial efforts and suppressing extravagant consumption and tunneling behavior. We then manually collect data on China's non-financial firms' financialization including investing in entrusted loans and wealth management products (WMPs) to empirically test the effects of corporate governance. The results show that enhanced corporate governance can suppress non-financial firms' financialization.

Suggested Citation

  • Liu, Zehao & Tang, Huoqing & Zhang, Chengsi, 2023. "Corporate governance, moral hazard, and financialization," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 318-331.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:318-331
    DOI: 10.1016/j.iref.2023.06.042
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    References listed on IDEAS

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    1. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 863-886, November.
    2. Demir, FIrat, 2009. "Financial liberalization, private investment and portfolio choice: Financialization of real sectors in emerging markets," Journal of Development Economics, Elsevier, vol. 88(2), pages 314-324, March.
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    Cited by:

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    More about this item

    Keywords

    Corporate governance; Moral hazard; Financialization; Chinese economy;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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