Financial Controlling Shareholders,corporate Financialization And Capital Market Efficiency

In recent years,many financial resources flow from real economy to the finance and real estate fields.According to the data from CSMAR,the investment in financial assets by non-financial listed companies in China increases from 608.4billion RMB in 2007 to 577.4 billion RMB in 2019,with an increase of 514.3 billion RMB and an average annual growth rate of approximately 21%.Moreover,the financial gains increase from 95.6 billion yuan in 2007 to 519.7 billion yuan in 2019,with an increase of 424.2 billion yuan and an increase of more than five times.However,Chinese economy is at a critical stage of structural adjustment,transformation,and upgrading.It is important to study the influencing factors of corporate financialization and clarification of the driving mechanism behind it,and further comb the relationship between corporate financialization and corporate entity investment.In addition,the report of the 19 th National Congress of the Communist Party of China and related policy documents have repeatedly emphasized that “the focus of economic development must be on the real economy”and “enhance the ability of financial services to serve the real economy”.However,the prerequisite for the financial market to effectively perform its function is that the capital market can fully and effectively transmit information.Therefore,exploring the impact of corporate financialization on the efficiency of capital market information transmission is of great significance to promoting the healthy development of the financial market and realizing the optimal allocation of resources.Based on the above research background,in accordance with the research ideas of “current situation analysis—influencing factors—economic consequences”,this paper makes an in-depth analysis of the status quo of corporate financialization,the factors affecting corporate financialization,the relationship between corporate financialization and the capital market efficiency.Conclusions as below:First,there is an increasing trend of corporate financialization from 2007 to2019,and the change of transaction financial assets and long-term equity investment is relatively flat,the entrusted investment products have a significant upward trend,but the investment real estate shows a declining trend from 2007 to 2015.Generally speaking,the level of corporate financialization is relatively high when enterprises are non-state-owned,small-scale,low-growth,and at low-market competition level.Besides,the introduction of ten industrial revitalization plans significantly promotes the degree of corporate financialization,and the promotion is relatively higher in the eastern region.Second,we study on the relationship between the financial background of controlling shareholders and corporate financialization,to explore the influencing factors and driving mechanism of non-financial companies’ financial asset investment activities.Both case and empirical studies show that the financial background of controlling shareholder increases the degree of corporate financialization.(ⅰ)The case study re-examines the issue of economic financialization based on the theory of industry-finance relationship from Marx’s “Das Kapital”.The creation of financial capital was to provide financing services for industrial capital,however,the relationship of industry-finance has been distorted.Financial capital has achieved a dominant position and is no longer simply satisfied with providing financial services for industrial capital.Once financial capital obtains the control of industrial capital,the capital will be financialized in order to achieve multiple and short profits.This paper analyzes the specific process of how financial shareholders can quickly increase the degree of corporate financialization after the state-owned agricultural enterprise(Wuchangyu)is controlled by the financial shareholder(Huapu Group).We find that Huapu Group can acquire the controlling right of Wuchangyu at a low price;After controlling Wuchangyu,Huapu Group injects real estate subsidiaries into Wuchangyu at a high price,and then sells Wuchangyu agricultural assets at a discount,leading to the industry of Wuchangyu changed from agriculture to real estate.At the same time,Wuchangyu asset structure changes from agricultural assets to real estate inventory assets,and operating income structure changes from agricultural income to real estate income.We conjecture that the financial nature of controlling shareholders is an important cause for the increase in the degree of corporate financialization.Financial capital dominates the lifeblood of industry.However,after financial capital gains the control rights of industrial capital,it will financialize the industrial capital to make profits.(ⅱ)Based on the case study,we choose listed companies in Shanghai and Shenzhen A-share market from 2007 to 2019 as samples to examine the relationship between controlling shareholder’s financial background and corporate financialization,and then discusses the mechanism,environment and the economic consequences.We find that controlling shareholder’s financial background has a significant positive impact on corporate financialization,and firms with financial controlling shareholders will increase long-term value reserving financial investment.Further analysis shows that firms’ financialization trend with lower financing constraints is more sensitive to controlling shareholders’ financial background,which suggests that speculating is the essential motivation of firms’ financialization,rather than precautionary saving.The mechanism test shows that controlling shareholder’s financial background mainly promotes corporate financialization by increasing the financial long-term equity investments at the parent company level.When studying the effect environment of controlling shareholder’s financial background on corporate financialization,we find that the positive impact is more obvious in credit advantage firms and firms with poor institutional environment and real investment environment.Finally,there is an inverted U relationship between corporate financialization and investment efficiency,and the marginal effect of corporate financialization on investment efficiency is greater in firms with financial shareholders.Third,we study on the relationship between corporate financialization and analyst forecast behavior and the value relevance of earnings,respectively.And,we further study the impact of financial controlling shareholders’ financial investment behavior on capital market efficiency.The research goal is to explore the impact of corporate financialization on the efficiency of capital market.It is a behind-end research on corporate financialization issues.(ⅰ)We study the influence of corporate financialization on the information environment of capital market and uses analysts tracking and predicting behavior to examine whether the information environment has been affected.The result shows that the increase of corporate financialization will lead to a significant reduction on the number of analysts tracking.And,corporate financialization also increases the error of analysts’ earnings forecast and the divergence between analysts’ earnings forecast.Further analysis shows that the increase of the degree of corporate financialization reduces the quality of corporate earnings and increases the fluctuation of corporate earnings,thus significantly affecting the forecasting behavior of analysts.(ⅱ)From the perspective of the value relevance of earnings,we continue to study the impact of corporate financialization on the capital market information transmission efficiency,and discuss the operating environment and mechanisms.We find that the excessive financialization of enterprises reduces the value relevance of earnings.The allocation of financial assets based on profit-seeking motives significantly reduces the value relevance of earnings,and long-term financial assets have a greater impact on the value relevance of earnings.These results show that corporate financialization has significantly reduced the quality and sustainability of corporate earnings,increased investors’ mispricing of accrual earnings and reduced the number of analysts tracking,resulting in a decrease in corporate earnings value relevance.The heterogeneity analysis shows that the improvement of financial market development and audit quality,QFII holdings can weaken the negative impact of corporate financialization on the relevance of earnings.(ⅲ)From the perspective of stock price crash risk and total factor productivity,we continue to study on the impact of financial controlling shareholders’ financial investment behavior on capital market efficiency.We find that the financial investment behavior of financial controlling shareholders significantly increases the risk of stock price crash and reduces the level of total factor productivity.From the perspective of the market environment,the negative impact is mainly concentrated in the enterprises with a low level of financial market development and weak product market competition,which indicates the development of the financial market and the improvement of the market survival mechanism can help to alleviate the negative effects of corporate financialization.From corporate governance perspective,the negative impact is mainly concentrated in companies with weak internal equity checks and balances and no QFII holdings,showing that strengthening the supervision and restraint of controlling shareholders’ control will help alleviate the negative effects.In terms of influencing factors,our evidence shows that the financial background of the controlling shareholders is an important reason for corporate financialization.This provides a certain reference value for the government to solve the problem of economic financialization and guides capital to flow back to the real economy.The capital market information efficiency is vital to the real economy,as it can affect the efficiency of resource allocation and economic growth.In terms of economic consequences,our evidence reveals the specific ways that corporate financialization reduce the efficiency of capital market information transmission.It helps us to understand the internal logic of financialization disrupting the information environment of the capital market,thereby improving and optimizing the efficiency of capital market information transmission and realizing the optimal allocation of resources.Finally,we find that the financial controlling shareholders’ financial investment behavior significantly reduces the efficiency of the capital market,which has important implications for improving the efficiency of the capital market and building a corporate governance mechanism that restricts the behavior of controlling shareholders.