Research On The Impact Of Financialization Of Real Enterprises On Debt Default Risk

With the continuous development of the financial industry,in order to obtain high returns in the financial industry,real enterprises have invested a large amount of funds in the financial field with high returns,and the phenomenon of‘financialization of real enterprises’ has emerged.Although enterprises can obtain high returns in the financial industry by investing idle funds in short-term financial assets,excessive investment of large amounts of funds in the financial industry and real estate directly affects the funds that enterprises can use to repay debts,and even triggers the risk of debt default.A debt default would not only threaten the normal operation of enterprises,but also pose a great threat to the country’s financial system and economic security.Therefore,this paper studies the impact of financialization on debt default risk,in order to provide theoretical support and empirical evidence for entities to rationally allocate financial assets and reduce debt default risk.Based on the theory of precautionary savings,investment substitution theory,information asymmetry theory,etc.,this paper deduces the mechanism of corporate financialization on debt default risk and the difference in the impact of on debt default risk under different corporate governance mechanisms,and empirically tests the research objects of China’s A-share listed companies from 2007 to 2020.It is found that:(1)Increased investment in financial assets by under-financialised firms can reduce the risk of debt default by easing financing constraints;(2)Increased investment in financial assets by over-financialised firms increases the volatility of corporate surpluses leading to inadequate endogenous financing,increasing the cost of corporate debt deteriorating the external financing environment and increasing the risk of corporate debt defaults;(3)The impact of excessive financialization on debt default risk under different corporate governance mechanisms is different.In terms of internal governance,overly financialized enterprises that implement equity incentives for executives are more inclined to invest in low-risk financial assets and have a lower risk of debt default.Enterprises with high internal control quality not only have a lower proportion of risky financial assets,but also have a lower degree of information asymmetry and a lower risk of debt default.In terms of external governance,high-quality audit can exert a deterrent effect and supervision effect,so the proportion of risky financial assets of enterprises that undergo high-quality external audit is low,the degree of information asymmetry is low,and the risk of debt default is low.Based on the above research,this paper argues that Chinese enterprises should pay attention to the impact of financialization moderation on debt default risk,reasonably allocate financial assets according to their own development status,and avoid the adverse effects of excessive financialization.When a higher proportion of financial asset investment is made,it is necessary to restrict the enterprise’s high-risk financial asset investment by implementing equity incentives,improving internal control and selecting high-quality accounting firms,so as to reduce the risk of debt default.