Financial Cycle, Enterprise Financialization And Innovation

It was pointed out in The 19th Communist Party of China National Congress that the principal contradiction in the new era is the contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life.To resolve this contradiction,We must deepen reform of the financial system,enhance the ability of financial system to serve the real economy.Moderate financialization can revitalize the market and stimulate the momentum.While over-financialization not only fails to establish a mode of financial capital accumulation which leads to promoting the economic development,and even may squash the development of the innovation sector.After summarizing and organizing the the influencing factors of enterprise innovation,this study categorizes financial asset allocation motivative into precautionary motive and speculative motive according to the difference of asset financialization and gives an illustration based on the financialization of assets and profits respectively.From the perspective of the financial cycle,this research studies the effects of changes of financial cycle on the sensitivity of two kinds of innovation-financialization and put forward four main hypothesis:the direct correlation between financial cycle and enterprise innovation,the influence of enterprise financialization on innovation,the relationship between the sensitivity of innovation-financialization and the cycle,and its heterogeneity in different types of firms.The study is aimed to figure out a micromechanism of the financial cycle affecting research and innovation activities of companies from the perspective of enterprise behavior.This study constructs the Tobin's Q model including the cycle factors and carries out an empirical test on the four theoretical hypothesis using the system GMM method based on the proportion of intangible and financial assets and financial business profit data of 1554 non-financial listed companies in China from 2007 to 2016.Furthermore,the study confirms the robustness of the research results through replacing basic model,adjusting explanatory variables,transforming metrics and including dummy variables.It is shown that there is a positive correlation between research and innovation activities of companies and financial cycles.Enterprise financialization has two effects on innovation activities:The degree of financialization of assets reflects the precautionary motive of the enterprise,and has positive influence on enterprise innovation activities.The degree of profit financialization reflects the financialized speculative motive of the enterprise,and has an extrusive effect on enterprise innovation.The financial cycle influences corporate asset allocation and investment decision by changing the intensity of precautionary motive and speculative motive which leads to the influence on enterprise innovation:The prosperity of the financial market and financial system reduces the intensity of precautionary motive and intensifies the speculative motive of financialization.The dependency level of innovation on the holding of financial assets and income by sales is lowered.But the increase in profits of financial services may induce companies to expand financial investment and ignore innovation.The above results show heterogeneity in companies which are diverse in industries,types,and government support capacity.Non-manufacturing enterprises,private enterprises,and enterprises without government support have strong time-varying nature in innovation-financialization sensitivity(precautionary motive and speculative motive).While time-varying nature is not evident in manufacturing enterprises,state-owned enterprises,and government-supported enterprises.Government support is beneficial to corporate innovation activities.Growth indexes such as Tobin Q ratio and operating profit growth rate have a negative effect on corporate innovation.This negative effect reflects the irrational investment of domestic companies.The conclusion of this paper can provide advice for financial reform and innovation-driven strategy.The implementation of innovation-driven strategy requires joint efforts of enterprises,government and financial system.Enterprises need to take the initiative to promote innovation awareness,ability and efficiency.The financial system should continue to deepen reform of the financial system,defend and remove financial risk.Governments need to develop policies based on trends,delegate power and strengthen regulation,in order to guide the real economy to return to the source.