Financial Asset Allocation And Risk-taking In Real Sectors

In recent years,the phenomenon that many companies in non-financial industry actively participate in financial activities has caught much attention.With the policy of strictly controlling the systematic financial risk announced by the central government,this paper aims to study whether the financial assets held by non-financial companies will bring more risk to themselves.According to the risk characteristics of different financial assets,this paper divides a company’s whole financial assets into safe financial assets and risky financial assets,and uses three years’ volatility of return on assets to measure corporate risk-taking,in order to examine the impact of the two types of financial assets on the risk-taking of non-financial companies.Based on the data in financial reports and financial notes of 2,539 A-share listed non-financial companies in China from 2007 to 2017,this paper conducts an empirical study on the relationship between the two types of financial assets and corporate risk-taking using panel regression method.The empirical results show that the increase of safe financial assets will not increase corporate risk-taking of non-financial companies,while the increase of risky financial assets will significantly lead to an increase of corporate risk-taking.In order to verify the robustness of the conclusion,this paper uses some other methods,including the instrument variable test,changing the period of observations,narrowing the range of industries and changing the dependent variable,and the results all support the conclusion.In further analysis,this paper studies the mechanism through which risky financial assets increase corporate risk-taking.It can be proved that there exist two channels.Firstly,when a company increases the proportion of risky financial assets in total assets,the return volatility of the company’s total financial assets also increases,which could lead to an increase in the volatility of return on total asset,that is,the corporate risk-taking by definition.And secondly,more investments in financial assets could lead to less investment in fixed assets,intangible assets and other long term assets,while less input in these industrial related assets could result in a higher corporate risk-taking.Moreover,this paper finds that the influence of risky financial assets on corporate risk-taking is more significant for companies with smaller scale,higher financing constraints and the location in eastern China.Besides,more detailed different types of financial assets also have different impact on corporate risk-taking.From a micro-perspective,this study provides new evidence for the economic consequence of the behavior that many non-financial companies hold a large proportion of financial assets,and also has some practical significance.The conclusion that risky financial assets could significantly increase corporate risk-taking implies that the risk in financial sector could be easily transmitted to nonfinancial sectors through financial assets.For regulators,they should consider to regulate financial investment activities of listed non-financial companies.And for non-financial companies,they should decide the appropriate level of risky financial assets based on their risk tolerance.