Main business profits at risk? Examining the financialization conundrum

Guoheng Hu, Lixue Li, Shan Liu and Guo Wu

Finance Research Letters, 2024, vol. 69, issue PA

Abstract: We examine the impact of financialization on the profitability of firms’ main business activities and the role of monetary policy. Using evidence from Chinese A-share listed firms from 2008–2019, we reveal that financialization leads to a significant reduction in firms’ main business profits. The negative effect remains robust after testing for robustness and addressing endogenous concerns. We also find that expansionary monetary policy exacerbates this effect, and it is more pronounced when firms hold more short-term financial assets and in state-owned firms. Our findings suggest that enterprises shall strategically reassess investment priorities towards long-term operational sustainability and value creation, while mitigating excessive financialization tendencies.

Keywords: Financialization; Main business profit; Monetary policy; Resource allocation (search for similar items in EconPapers)
JEL-codes: E52 G30 O16 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011644

DOI: 10.1016/j.frl.2024.106135

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