Research On The Impact Of Financialization Of Real Enterprises On The Cost Of Equity Capital

In recent years,our economic development presents more and more remarkable financial trend of "real to virtual".In order to obtain higher profits,more and more entity companies have invested in financial assets,resulting in a large amount of industrial capital leaving the original entity sector and flowing to the virtual economy,deepening the degree of financialization of entity enterprises.Such transformation affects investors’ perception of risk,and the required rate of return--cost of equity capital may also change accordingly.The cost of equity capital is the cost that an enterprise needs to pay for financing by issuing shares.It is an important part of the enterprise’s financial management and has an important impact on the business decision of the enterprise.Then,as investors in the capital market,how to view the financialization of entity enterprises and whether it will lead to changes in the cost of equity capital of enterprises? Based on this,this paper makes an empirical study of the relationship between them.Based on the data of Chinese A-share listed enterprises in Shanghai and Shenzhen from 2007 to 2021,this paper explores how the financialization of entity enterprises affects the cost of equity capital and its specific action path.The results show that there is a U-shaped relationship between the financialization of entity enterprises and the cost of equity capital.When the financialization degree of entity enterprises is low,the cost of equity capital decreases with the improvement of the level of financialization.When the financialization level of entity enterprises exceeds the critical point,the cost of equity capital increases with the improvement of the level of financialization.Heterogeneity test analysis shows that the significant U-shaped relationship between financialization and cost of equity capital is mainly reflected in non-state-owned enterprises and enterprises with high financing constraints.The study on the mechanism of action shows that operation risk is the intermediary factor of the U-shaped relationship between the financialization of entity enterprises and the cost of equity capital.The research results show that when the level of financialization is low,enterprises reduce operating risks by allocating financial assets,thus reducing the cost of equity capital,which is more manifested as the "precautionary savings motivation" of entity enterprises.However,we should also be vigilant that excessive financialization leads to the dominance of the "profit-chasing motive" of enterprises,which further intensifies operational risks,changes the relationship between the two,and leads to the increase of the cost of equity capital.The research contributions of this paper are as follows: First,it enriches relevant literature on the economic consequences of financialization of real enterprises.At present,the financialization of entity enterprises is a hot topic for scholars to study,but most of the literature mainly focuses on the research on the influencing factors of the financialization of entity enterprises.Based on the perspective of investors,this paper studies the impact of the financialization of entity enterprises on the cost of equity capital,which enriches the research literature in the field of financialization.Secondly,it demonstrates that there is a "U-shaped" relationship between the financialization of real enterprises and the cost of equity capital,which provides certain empirical evidence for the theoretical disputes on the financialization of real enterprises and provides a new direction for alleviating the adverse effects brought by the financialization of real enterprises.