Pension insurance contributions and corporate financialization: evidence from China

Changyuan Xia, Xieen Mao, Haizong Yu and Kam C. Chan

Nankai Business Review International, 2022, vol. 14, issue 3, 556-575

Abstract: Purpose - This paper aims to investigate the impact of a firm’s pension insurance contributions (PIC) on its financialization (investment in risky assets) using a sample of Chinese firms. Design/methodology/approach - The authors use a multiple regression model to conduct the analysis. Findings - The findings suggest that a firm’s PIC increases its financialization. Additional analysis suggests that firms with higher PIC are more likely to have lower operating profit and higher financial risk. In addition, the impact of PIC on financialization is more salient when a firm faces high industry competitiveness, holds more cash, has high labor costs and labor intensity or is non-state owned. Practical implications - The paper adds to the growing literature on the effect of social insurance on corporate policies. The findings complement those related to the relationship between defined contributions and defined benefits retirement plans and corporate policies. Social implications - The study contributes to the debate on the merits of financialization. The literature is mixed on the pros and cons of financialization. The results suggest that financialization has an adverse effect on a firm’s performance and risk in the lens of increased PIC. Originality/value - China has seen a trend of financialization arising from the rapid economic development in the past decade. Moreover, the PIC premiums in China are not trivial. Thus, the significant cost of PIC and the financialization trend suggest that the answer to the research question is timely and meaningful.

Keywords: Pension insurance; Financialization; Corporate cash holding; China (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:nbri-04-2022-0045

DOI: 10.1108/NBRI-04-2022-0045

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