Abstract
Whether and how financialization could crowd out real investments, and the resulting “from real to virtual” phenomenon has great economic implications. This study examines the effect of firm-level financialization on real corporate investments, using a sample of non-financial firms in China. We find a negative association between firm financialization and optimal real investments, indicating that financial market speculations depress long-term real investments. Further, the dampening effect is more pronounced for firms with weaker board monitoring, with less financially-sophisticated managers, suggesting that the investment distortion caused by financialization can be partially alleviated by strong corporate governance and managers’ financial expertise.
| Original language | English |
|---|---|
| Article number | 101970 |
| Journal | Pacific Basin Finance Journal |
| Volume | 79 |
| DOIs | |
| State | Published - Jun 2023 |
Keywords
- Corporate financialization
- Corporate governance
- Corporate investment
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