Corporate governance, moral hazard, and financialization

Zehao Liu, Huoqing Tang and Chengsi Zhang

International Review of Economics & Finance, 2023, vol. 88, issue C, 318-331

Abstract: Corporate governance, by mitigating managers' moral hazard problems and affecting firms' operational efficiency, significantly influences firms' allocation of funds between investing in internal projects and financial investments. We develop a model for how better corporate governance influences firms' financialization through increasing managerial efforts and suppressing extravagant consumption and tunneling behavior. We then manually collect data on China's non-financial firms' financialization including investing in entrusted loans and wealth management products (WMPs) to empirically test the effects of corporate governance. The results show that enhanced corporate governance can suppress non-financial firms' financialization.

Keywords: Corporate governance; Moral hazard; Financialization; Chinese economy (search for similar items in EconPapers)
JEL-codes: E51 G24 G38 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:88:y:2023:i:c:p:318-331

DOI: 10.1016/j.iref.2023.06.042

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