The Relationship Between Corporate Financialization and Digital Finance in the Era of Digital Transformation

Jing Zou ()
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Jing Zou: International Business College, Dalian Minzu University

Journal of the Knowledge Economy, 2024, vol. 15, issue 3, No 123, 13425-13448

Abstract: Abstract This paper examines the complex connection between corporate financialization and the related financial risks, specifically in the context of China’s economic reforms and the growing digital financial industry. Although digital finance has become increasingly prevalent, there are growing concerns about its negative effects, such as the creation of financial bubbles in sectors like real estate, which pose a threat to the stability of China’s actual economy. Corporations in China are becoming more dependent on digital assets and cash flows as they manage their financial operations. This is contributing to an increased level of financial risk in the country. This study reveals a non-linear, U-shaped correlation between company financialization and financial risk by utilizing a comprehensive theoretical framework that includes transaction cost theory, business management theories, competitive theories, and resource allocation theories. In contrast to the linear models typically observed in economics, our research indicates that financial risk first declines as financialization increases but then progressively intensifies. This paper also examines phenomena such as the “reservoir effect,” along with associated “crowding-out” and “risk contagion” effects. The research demonstrates that the process of digital financialization intensifies the financial risk faced by businesses, presenting a substantial obstacle to the long-term growth of China’s real economy. The study offers unique insights on how to reduce financial risks during the digital transformation age, making significant contributions to both academic research and practical implementation. This analysis is especially relevant for comprehending how corporate financial conduct is influencing, and being influenced by, the digital financial ecosystem. It also provides policy recommendations for attaining a balanced growth path in China’s digital finance landscape.

Keywords: Enterprise financialization; Financial risk; Digital finance; Corporations (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01649-3

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