Board Faultlines And Corporate Financialization:Promoting Or Disincentivizing?

In recent years,China’s economy has seen a large amount of "de-realisation",in order to solve this problem and ensure the high-quality development of China’s real economy.In order to solve this problem and to ensure the high-quality development of the real economy,the 20 th and 2023 reports of the two sessions of the National People’s Congress have mentioned the requirements of making financial assets better serve the development of real enterprises and preventing systemic financial risks.The search for factors influencing China’s economy to "return to the real world" has become a hot topic of academic concern,and existing scholars have mainly studied the factors influencing the financialisation of enterprises at the macro level,the micro level and the financial market level,but none of them have touched on the micro-level factor of the board of directors’ fracture zone.The effective functioning of a board of directors depends on the characteristics of its members.When there is a large number of overlapping characteristics in a board of directors,the board will form sub-groups based on these characteristics,and the emergence of sub-groups implies the formation of board fracture zones.Does the formation of board fracture zones then affect the supervisory function of firms,and hence the financialisation behaviour of real firms?This paper empirically investigates the relationship between boardroom fracture zones and corporate financialisation,using Shanghai and Shenzhen A-share listed companies from 2008-2021 as a research sample,and finds that boardroom fracture zones promote the financialisation of real firms.The reason for this is that when board fracture zones are formed,there are different sub-groups in the board of directors,and each sub-group is only willing to exchange information with people inside the sub-group,which hinders information transparency and reduces the board’s monitoring ability;furthermore,according to the self-categorisation theory,people inside the sub-group approve of each other,while giving negative evaluations to other sub-groups outside the sub-group,and each sub-group is prone to form conflicts,thus The willingness of the board to monitor is reduced.The decline in the board’s willingness to supervise and its supervisory function leads to a decline in the board’s supervisory function,which in turn increases management self-interest,increases principal-agent costs and thus promotes the financialisation of real firms.The findings of this paper pass a number of robustness tests,including,among others,replacement of explanatory variables,sub-sample regressions,change of measures,instrumental variables approach,PSM approach,and cluster analysis approach.Next this paper also verifies the mediators affecting corporate financialisation,this paper also verifies the mediating role of agency costs through the mediating effects test,the study finds that when there is a fracture zone in the board of directors,its supervisory function decreases,the discretion of executives expands,the likelihood of private gain through self-interested behaviour increases,agency costs increase and management is more inclined to make financial investments to earn excess returns,resulting in corporate Financialisation increases.In further analysis,the paper firstly distinguishes between types of fracture zones and finds that deeper fracture zones promote the financialisation of real firms more significantly than shallow fracture zones.Secondly,the paper explores the differences in the impact of boardroom fracture zones on the financialisation of firms across different ownership properties,different equity concentration levels and different degrees of marketisation.The study finds that compared to private firms,firms with high marketisation levels and firms with high equity concentration levels,state-owned firms,firms with low marketisation levels,and firms with low equity concentration levels have more severe principal-agent problems and boardroom fracture zones have a more significant effect on financialisation The degree of financialisation is facilitated more significantly.Finally,the paper distinguishes between types of financial assets and finds that boardroom fracture zones have a stronger effect on long-term financial assets than on short-term financial assets.The research in this paper enriches the literature on the economic consequences of boardroom fracture zones and the factors influencing the financialisation of firms,and helps to better clarify the impact of boardroom fracture zones on firms,open up the "black box" of boardroom fracture zones,regulate and improve the supervisory function of boards of directors,and provide a reference for how to form high-quality board members in China.This paper provides a reference for the formation of quality board members in China.