Factors Influencing Corporate Financial Assets Holding Of Non-Financial Listed Companies

In capital market, investors could usually be divided into two groups:institutional investors and household investors. While in China, a third groupof investors, listed companies themselves, are very active in the capitalmarket. It is true that financial organizations take financial investment to earnprofit. But for non-financial companies, capital market provides fund forthem to take real investment. Nowadays, listed non-financial companies,willing to earn short-term high profit, actively invest in the capital market.This phenomenon attracts many people in and out of China.But researchers do not pay much attention to corporate financial assetsholding of non-financial listed companies, partly because this phenomenon isChina-specific, partly because lacking of consensus on how to estimate sizeof financial assets.According to the guiding opinions of China Certified Public AccountantAssociation, I designed a formula to calculate size of financial assets, by using the old and the new Accounting Standards for Business Enterprises.Creatively, I use both the absolute size and the relative size of financial assetsas proxies of financial assets scale, to explore factors influencing financialassets scale.By taking empirical test, I found that:Firms with preferable operating circumstance hold fewer financial assets.So, these firms do not blindly take financial investment. It is the badcondition of operating activities that push them to switch to financial market.Firms with state shareholders hold relatively fewer financial assets, becausethe state want these firms to expand operating activities, providing more jobsand stabilizing the society, and because managers of state-controlledcompanies are relatively risk-reverse.Financial investment of non-financial listed companies is influenced byinternal and external financial constraints. With high profitability and lowleverage, the company will take more financial investment.The market does not recognize profit from financial investment as thatfrom real investment. The market value of company is negatively related tofinancial assets scale. This is because the financial investment is not relatedto core business, and is risky. Excessive financial investment may hurt corebusiness. Macro factors also influence financial investment. The benchmarkinterest rate is negatively related to financial assets scale. Besides, companieshold more financial assets, when faced with high macro liquidity andprosperous security market. Macroeconomic factors influence financial assetsholding, by influencing financial constraints and financial assets profitability.This paper makes the following suggestions:Only by creating suitable environment for operating activities, could thegovernment encourage listed companies to focus on core business again.Issuing regulation to discouraging financial investment would not beeffective.The Ministry of Finance should modify the accounting standards forfinancial assets recognition. Earning management could easily take use of theaccount of Financial Assets Available for Sale. Besides, there should be clearguidance on how to recognize entrust loans and financial products.