The Spillover Effect Of Inquiry Regulation On The Financialisation Of Non-receiving Companies

The disorderly expansion of the financial activities of real enterprises has exacerbated the "de-realisation" of the economy.The report of the 20 th National Congress of the Communist Party of China clearly emphasises the requirement to bring all types of financial activities under supervision,including the regulation of nonfinancial enterprises’ participation in financial activities.With the deepening of China’s regulatory regime and the development of "ex-post" and "ex-ante" regulation,exchanges are playing an increasingly important role in regulating the financial activities of enterprises.In response to the reform of the registration system,the enquiry regulation,represented by the financial reporting inquiry letter,has been widely used,and the regulatory inquiries from the exchanges on the financialisation of companies are not only directional in nature.While the existing literature focuses on the impact of letters of enquiry on recipient companies,the fact that the majority of companies are still not questioned each year does not mean that they are free from potential problems.Therefore,it is also important to examine the impact of exchange enquiry regulation on non-receiving companies.In order to explore the spillover effect of enquiry regulation,this paper takes the issue of corporate financialisation as the starting point and explains the prerequisite for the spillover effect of enquiry regulation,which is the peer effect of corporate financialisation behaviour.At the same time,we combine deterrence theory and collective reputation theory to analyse how the spillover effect of inquiring regulation on the financialisation behaviour of non-respondent firms.This paper selects financial data of listed companies from 2014-2021 and financial report enquiry letters from 2015-2021 from the Shanghai and Shenzhen Stock Exchanges,and employs fixed-effects models and natural language processing techniques to empirically test the relationship between financial report enquiry letters and the degree of financialisation of nonreceiving enterprises in the industry and region.The study finds that:(1)financial reporting letters suppress the financialisation of non-receiving firms in the same industry.From the full sample or the non-North China,Guangzhou and Shenzhen samples,the enquiry regulation has a regional spillover effect,but the receipt of financial reporting enquiry letters by firms in North China,Guangzhou and Shenzhen does not have an impact on other firms in the region.(2)The spillover effect is more pronounced for letters of enquiry that refer to financial assets than for other letters.(3)When a letter of inquiry is related to an enterprise’s financial position and asset value assessment,it will significantly inhibit the allocation of financial assets of non-receiving enterprises in the same industry;when a letter of inquiry on financial reporting is related to issues such as financial position,stakeholders,R&D investment and expenses and audit,non-receiving enterprises in the same region will take the initiative to adjust their financial asset allocation decisions.(4)By differentiating the financial assets of enterprises through liquidity,the paper finds that the inhibitory effect of the enquiry letter on the allocation of long-term financial assets of non-receiving enterprises is stronger,and this finding holds true at both the industry level and the regional level.