The nexus between trade policy uncertainty and corporate financialization: Evidence from China

Deng-Kui Si, Jiali Zhuang, Xinyu Ge and Yong Yu

China Economic Review, 2024, vol. 84, issue C

Abstract: Though previous studies have suggested that policy-related uncertainty is a key factor that influences corporate financialization, it is far clear how trade policy uncertainty (TPU) impacts it. Using a large sample of Chinese listed non-financial enterprises (NFEs) over the period of 2007–2020, we develop a model by introducing the cross-sectional difference in firm-specific TPU exposure to explore the nexus between TPU and corporate financialization. We find that TPU is positively associated with corporate financialization. Increased TPU raises corporate financialization by affecting cash holdings, firm value, and return gap between real and financial investments. Our results are robust to using alternative measures of TPU exposure and corporate financialization, controlling for other policy uncertainties, and instrumental variable estimation. Our findings suggest that TPU is detrimental to the high-quality development of the real economy, and meanwhile hampers financial stability.

Keywords: Trade policy uncertainty; TPU exposure; Corporate financialization (search for similar items in EconPapers)
JEL-codes: F13 G11 G32 G38 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:84:y:2024:i:c:s1043951x24000026

DOI: 10.1016/j.chieco.2024.102113

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