Research On The Causes And Economic Effects Of The Financialization Of Chinese Real Enterprises

With the economy entering the "new normal",the economic development mode has changed from a stage of high-speed growth to a stage of high-quality development.Among them,the real economy is the foundation and main body to achieve high-quality development.However,in recent years,the real economy activities has faced the problem of "transform from substantial to fictitious",one of the prominent phenomena is the financialization of non-financial firms.In order to chase for short-term excess returns,many non-financial firms allocate a large amount of funds in the financial markets such as the stock market and real estate.Excessive financial investment will distort the efficiency of firm capital allocation and development model,triggering phenomena such as "disregarding business" and "speculative arbitrage" in real firms,which may pose important challenges to the high-quality development of China's economy.The issue of "transform from substantial to fictitious" and financialization of non-financial firms have attracted great attention from decision-making departments,the report of the 19 th National Congress of the Communist Party of China and relevant policy documents have repeatedly emphasized that "putting the focus of economic development on the real economy" and "enhancing the ability of financial services to the real economy." Under this background,understanding the current status of financialization of non-financial firms,analyzing the causes of this phenomenon,and exploring its economic effects have become important topics that need to be studied urgently.The research on the above issues not only helps to deepen the understanding of the reasons behind the financialization of non-financial firms,but also has important practical significance for promoting the coordinated development of the real economy and the virtual economy and further improving the quality of economic development.In response to the problem of "transform from substantial to fictitious",this paper deeply studies the causes of the financialization of non-financial firms from there perspective: internal factors,macro factors,and inter-firm contagion factors.Next,this paper examines the economic effects of firm financialization from multiple dimensions,such as micro-level firm product market competitiveness,R?D,productivity,financing costs,and the meso-level industry resource allocation efficiency.Compared with the existing research,the specific research work and main conclusions of this paper are as follows:Firstly,this paper studies the causes of the financialization of non-financial firms from three dimensions: inter-firm contagion factors,firm internal factors and macro factors,and compares the relative importance of each driving factor.Based on the balance sheet data of Shanghai and Shenzhen A-share non-financial listed companies from 2007 to 2018,this paper finds that the total scale of non-financial listed companies' financial asset investment and the number of financialized firms are showing a rising trend,indicating that the financialization of non-financial firms has become increasingly prominent in recent years.Further,this paper uses the peer effect model to test the causes of the financialization of non-financial firms.The results show that peer effect,firm internal factors and macro factors jointly drive the financialization of Chinese non-financial firms.Among them,the peer effect is the most important driving factor.Among the firm internal factors,equity concentration,and the difference between financial yield and entity yield are important factors that drive firm financialization.Among the macro factors,the driving effect of M2 and financial markets performance is very obvious.Secondly,since the peer effect is the most important cause of firm financialization,this article conducts an in-depth analysis of the peer effect phenomenon,paying particular attention to the formation mechanism of the peer effect and its impact on operating risk of real sector.The results show that:(1)the effect of information learning,the lack of effective competition in the product market,and the introduction of financial background management are important reasons for firm imitation.(2)The peer effect of firm financialization mainly occurs on speculative assets such as trading financial assets and investment real estate,which in turn promotes the prevalence of short-term speculation and speculation among firms.(3)The peer effect of firm financialization has asymmetry and irrational risks.When peer companies increase their holdings of financial assets,they have a stronger willingness to imitate and also tend to adopt the imitation strategy of increasing financial assets.Thirdly,under the realistic demands of high-quality economic development and raise the country's manufacturing power,this paper focuses on the impact of the financialization of non-financail firms on product market competitiveness.The markup reflects the ability of the firm to maintain the price above the marginal cost,which is a comprehensive measure of the product market competitiveness;markup is generally expressed by the ratio of the product price to the marginal cost of the firm.Based on De Loecker and Warzynski(2012),this paper constructs a markup measurement framework that conforms to the characteristics of this study.On this basis,this paper studies the effect of firm financialization on markup and analyzes the heterogeneity effect under different corporate characteristics and different macroeconomic environments.The research conclusions show that the financialization of non-financial firms has significantly restrained the firm markup,which is not conducive to enhancing the market competitiveness of products,and the above-mentioned restraint effect is closely related to the individual characteristics of non-financial firms and the macroeconomic environment,the restraint effect is more obvious in non-state-owned firms and firms with low subsidy intensity,and it is more serious during economic contraction periods and financial market rise periods.In addition,this paper uses theoretical models to show that R?D and innovation investment,productivity,and financing costs are important mechanisms for the financialization of non-financial firms to affect the markup.The empirical results show that the financialization of non-financial firms has significantly squeezed out the R?D and innovation investment and productivity,but financial asset investment cannot provide significant cost advantages for firm financing.This means that the "efficiency crowding-out effect" is an important mechanism for firm financialization to inhibit markup,the "cost reduction effect" of firm financialization is not significant.Finally,this paper takes markup dispersion as an important measure of industry resource mismatch,and evaluates the economic effects of firm financialization from the perspective of industry resource allocation efficiency.The research results show that: the increase in the degree of financialization will significantly increase the dispersion of industry markup,which will intensify the resource mismatch in the industry,and it's not conducive to the improvement of the efficiency of resource allocation.This is mainly because,on the one hand,firm financialization has differentiated impact on the markup of different quantiles,in general,the absolute value of the coefficient at the high quantile is generally smaller,and the absolute value of the coefficient at the lower quantile is relatively larger,this means that as the degree of financialization intensifies,firm financialization will force the markup of low-markup firms to be significantly reduced,but the reduction of high-markup firms will be smaller,which will relatively expand the markup gap,and leads to an increase in the industry markup dispersion.On the other hand,the firms with low markup are more likely to obtain short-term financial gains through financialization activities,thereby avoiding being crowded out by the market.Therefore,the lack of an effective exit mechanism is also a possible way for the financialization of non-financial firms to cause resource misallocation.Compared with the existing research,the possible innovations of this paper are as follows: First of all,fully understanding of the causes of firm financialization is of great significance to the prevention of economic "removal from reality to virtuality".This paper not only interprets the phenomenon of firm financialization from the firm internal factors,but also examines the influence of peer effects,economic cycles,money supply and financial market performance on firm financialization from the perspective of inter-firm contagion factors and macro factors,which provides a relatively new and comprehensive perspective for understanding the causes of firm financialization.Secondly,given that the peer effect is one of the most important causes of firm financialization,this paper conducts an in-depth analysis of the peer effect phenomenon,paying particular attention to the formation mechanism of the peer effect and its impact on operating risk of real sector.This not only enriches the connotation of peer effect research,but also helps deepen the understanding of the potential risk consequences of competing imitation behaviors in financial investment.Thirdly,although some studies have begun to pay attention to the economic effects of the financialization of non-financial firms,they have ignored the two obvious research perspectives of the product market competitivenes and the efficiency of resource allocation.This paper explores the impact of the financialization of non-financial firms on markup and its dispersion,and then advances the literature's understanding of the economic effect of firms' "removal from reality to virtual".Finally,this paper also makes a useful attempt at the technical level.Regarding the measurement method of markup,this paper mainly draws on the measurement framework of De Loecker and Warzynski(2012),but this article expands and improves it according to the research needs,and tries to construct a measurement framework that meets the characteristics of this paper.This paper also draws on the theoretical model of Levine and Warusawitharana(2019)to construct an optimal decision-making model that includes firm financialization,R?D and innovation investment,financing costs,and productivity,and then explains the mechanism of the effect of the financialization of non-financial on markup.Regarding the potential endogenous problems in the regression model,this paper also finds suitable instrumental variables and uses two-stage least squares(2SLS)methods to alleviate them,in order to obtain more reliable estimation results and research conclusions.