Enterprise financialization on physical investments and innovations : Moderating role of macro and micro factors

The trend of enterprise financialisation is a crucial issue in China, highlighting its rapid increase from 2010 to 2022, when over 80% of enterprises engaged in significant financial activities. Such a shift poses risks to the sustainable growth of China's physical economy. Built on prior analyses, this study provides an in-depth examination of financial asset allocation across listed Chinese enterprises, assessing the impact of financialisation on physical investments and innovations while considering variations across ownership types (non-state-owned, local state-owned and state-owned enterprises) and geographical regions (east, central and west regions). Non-financial enterprises listed on the Shanghai and Shenzhen A-shares markets from 2009 to 2022 were chosen as samples for the study. Observations of 9,380 samples within 14 years were obtained from the China Stock Market and Accounting Research Database (CSMAR). Employing the Generalised Method of Moments (GMM) and Ordinary Least Squares (OLS) for analyses, the research uncovers that the scale of physical investments decreases with financialisation. Still, investment efficiency is improved by addressing overinvestment and underinvestment issues in non-state-owned and local state-owned enterprises, especially in central and western regions. It is further established that a higher degree of financialisation correlates with increased innovations within enterprises. Additionally, the study notes a more profound impact of financialisation on physical investments under relaxed monetary conditions. However, GDP and financial constraints show minimal moderating effects on the financialization-innovation relationship. By exploring the effects of GDP, economic policies, financial constraints and main profits, the study contributes valuable insights into the interplay between enterprise financialisation and business outcomes: physical investments and innovations, offering guidance for policymakers and business leaders navigating the challenges and opportunities of enterprise financialisation