Financialization and sluggish fixed investment in Chinese real sector firms

Jiaxian Shu, Chengsi Zhang and Ning Zheng

International Review of Economics & Finance, 2020, vol. 69, issue C, 1106-1116

Abstract: China's economy has been slowing down over the past decade since 2007, with real investment posting obviously sluggish growth, in contrast to a rising trend of financialization in non-financial firms. Using firm-level panel data, this paper examines the impacts of firms' financialization on real investment in China with an extended portfolio choice model. Empirical results show that firms' financialization has an economically and statistically significant reducing effect on their real investment. Unlike the existing literature, however, we find that the return gap between real and financial investments plays a limited role in affecting real investment.

Keywords: Financialization; Fixed investment; Real sector; Chinese economy (search for similar items in EconPapers)
JEL-codes: D2 E2 G2 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:1106-1116

DOI: 10.1016/j.iref.2018.12.008

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