Study On Financialization Degree And Reasons Of Nonfinancial Chinese Corporations

The financialization has been the hot topic concerned by scholars since the financial crisis.The financialization is the term used to describe the fact that economic barycenter is shifted from production to finance. Not only does it reflect in expansion of financial institutions or financial profits, but also in more financial investment of nonfinancial corporations, namely the financialization of nonfinancial corporations. Statistics shows nonfinancial US corporations have presented the financialization of assets, profits and distributions since1980s.It means nonfinancial corporations keep more financial assets and they are earning a larger share of their profits from financial operations and they are discharging higher proportions of their earnings to the financial markets in the forms of interest payments, dividends, and stock buybacks. Do the nonfinancial Chinese corporations show the same situation? This paper will research the financialization degree of nonfinancial corporations of US and China.Meanwhile the paper will explain the difference of degree between US and China.Firstly, the paper defines the financialization of nonfinancial corporations and reviews the past research on financialization so as to accurately comprehend the essence of financialization of nonfinancial corporations and comprehensively understand the domestic and foreign research situations.This work will provide necessarily theoretical basis and references for the later research. The paper defines the financialization of nonfinancial corporations in two ways. From the dynamic perspective, it refers to the tendency of increasing financial investments to achieve the more financial profits and increasing financial payments. From the static perspective, it refers to the situation of relying on financial investments to get larger financial profits, which has resulted in a high proportion of financial assets in the total assets, an important proportion of financial profits in total profits and a higher distribution to financial market using profits. Secondly, this paper analyses the financialization degree of nonfinancial corporations of US and China using the statistical data from the Federal Reserve and the Bureau of Economic Analysis and statistics data of listed companies in China, The results show that U.S corporations have presented a high financialization degree since1980s. But the financialization of nonfinancial Chinese corporations is very low.Thirdly, this paper analyzes the reasons those result in high financialization degree of nonfinancial American corporations and the reasons those result in low financialization of nonfinancial Chinese corporations. This paper argues that the reasons of high financialization degree of nonfinancial American corporations include mainly:The new liberalism made a huge gap between financial investment returns and real investment returns, bringing the prosperity of financial sector in US and leading to the fierce product market competition at the same time. The rise of institutional investors prompted the revolution of shareholder value. Stock-based incentive solved the agency conflict. Those made shareholder value maximization become the shareholders’and managements’common goal.The strategy of retaining and reinvesting earning turned to downsizing the corporate labor-force and distributing a higher share of earning to shareholders, led to a shift from "patient" finance seeking long-term growth to "impatient" finance for short-term gains and made corporations find opportunities on financial market for high yield. And the reasons of the low financialization degree of nonfinancial Chinese corporations are mainly:Investment-driven and export-driven economy and rapid development of economy made corporations focus to investment in real assets and expanded reproduction. Lack of financial innovation and imperfect financial market development gave corporations a less chance and low returns to investment in financial products. The relevant national policies and the small scale restricted the integration between industry and finance as well as financial speculation. The strategy of retaining and reinvesting earning and the high concentration of share made the corporations focus to expanded reproduction for the long-term growth of the corporations and expend scale.Fourthly, the differences of the national policies, financial market conditions, product market competition and equity structure lead to a huge gap of the financialization degree between the two countries. This paper selects the total data of12years from2001to2012from all nonfinancial listed companies to research whether these differences influence the financialization degree of nonfinancial Chinese corporations by empirical method. The empirical results show:(1) A negative correlation between productive investment proportion and the financialization degree.(2) A positive correlation between the competition degree and the financialization degree under the imperfect financial market.(3) A negative correlation between the production yield rate and the financialization degree.(4) High equity concentration can reduce financialization, and the share proportion for institutional investors and equity incentive are uncorrelated with the financialization degree under the conditions of high equity concentration, small institutional investors scale and scant equity incentive.Innovations of this paper lie in:Ⅰ.The paper firstly reviews the literatures of financialization of nonfinancial corporations and defines the concept of financialization of nonfinancial corporations, providing theoretical basis and reference for future research.Ⅱ.The paper measures respectively the financialization degree of nonfinancial Chinese and American corporations from three aspects-assets, income and distribution. This provides reference for building a complete evaluation index system to measure the financialization of nonfinancial corporations. And the paper confirms the related scholars’points of view.Ⅲ.The paper firstly summarizes the reasons of the high financialization of nonfinancial American corporations and tries to analyze the reasons of the low financialization of nonfinancial Chinese corporations. It provides ideas for future related research.IV.The paper adopts empirical method to test the influence of related factors on financialization degree of nonfinancial Chinese corporations, which provides available financialization index and basic model for later empirical research.