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Financial Asset Allocations and R&D Activities: Evidence from China’s Listed Companies

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  • Guanchun Liu
  • Jun Zhang
  • Huihang Wu
  • Yuchao Peng

Abstract

Using the semi-annual nonfinancial listed companies from 2007 to 2015, this article investigates the impacts of financial asset allocations on R&D activities in China. Specifically, the ratio of financial asset holding (Fah) and that of financial profit (Fpr) are employed to measure firms’ behaviors of financial asset allocations, respectively. The results with dynamic investment-Q framework show that financial asset allocations significantly reduce current firms’ innovations, but Fah promotes R&D activities in the next few periods, while Fpr plays an adverse role. Furthermore, the relationships exist in different subsamples, and especially the positive impact of Fah in private firms is stronger than that in state-owned firms. Our findings indicate that, the allocation motivation of Fah as a reservoir and that of Fpr as a substitution are significantly different, which reveal that financial asset allocations perform liking a two-edged sword. Therefore, to avoid deindustrialization and industry hollowing, it is remarkable to supervise the upward trend of financial profit share by firms.

Suggested Citation

  • Guanchun Liu & Jun Zhang & Huihang Wu & Yuchao Peng, 2019. "Financial Asset Allocations and R&D Activities: Evidence from China’s Listed Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(3), pages 531-544, February.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:3:p:531-544
    DOI: 10.1080/1540496X.2018.1451990
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    Cited by:

    1. Xie, Hongji & Tian, Cunzhi & Pang, Fangying, 2024. "Venture capital and corporate financialization: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 119-136.
    2. Tang, Kai, 2024. "The influence of managerial ability on corporate financialization," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1229-1245.
    3. Feng, Yumei & Yao, Shouyu & Wang, Chunfeng & Liao, Jing & Cheng, Feiyang, 2022. "Diversification and financialization of non-financial corporations: Evidence from China," Emerging Markets Review, Elsevier, vol. 50(C).
    4. Guo, Chong & Jiang, Yalin & Yu, Fang & Wu, Yingyu, 2023. "Does environmental information disclosure promote or prohibit financialization of non-financial firms? Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 200-214.
    5. Gao, Haoyu & Wen, Huiyu & Wang, Xingjian, 2022. "Pandemic effect on corporate financial asset holdings: Precautionary or return-chasing?," Research in International Business and Finance, Elsevier, vol. 62(C).

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