Feed-back effect or crowding-out effect: The influence of financialization on the main business performance of real enterprises

Di Zheng, Guang Yang, Lei Lei and Pinghua Li

International Review of Economics & Finance, 2025, vol. 98, issue C

Abstract: Facing the current trend of the virtualization of the real economy, this paper examines the influence of financialization on the main business performance of real enterprises. Theoretically, corporate financialization often stems from the motives of “reservoir” and “speculative arbitrage”, which in turn lead to the “feed-back effect” or the “crowding-out effect. Collecting data from China's A-share listed companies from 2012 to 2022, this study constructs a micro-level indicator of corporate financialization and empirically tests the effects and mechanisms of financialization on their main business performance. The findings reveal that, overall, financialization has a detrimental impact on their main business performance, indicating that the “crowding-out effect” outweighs the “feed-back effect”. This conclusion remains robust after a series of robustness tests. Further mechanistic tests demonstrate that financialization does not act as a “reservoir” to reserve liquidity funds; rather, it inhibits corporate innovation investments and real capital investments, thereby diminishing the main business performance of real enterprises. This research, from the micro-level perspective, proves the influence of financialization on the development of real enterprises to be negative. It also offers empirical support for government to strengthen financial regulation of real enterprises and guide capital to “return from virtual to real”.

Keywords: Financialization; Main business performance; Innovation; Real capital investment (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056025000425
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000425

DOI: 10.1016/j.iref.2025.103879

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().