Chinese Industrial Hollowing-out Under The Micro Perspective: The Interactive Mechanism Of Operating Earnings And Financial Earnings

The phenomenon of Industrial Hollowing-out was first reported by the American in the 1960s, and then occurred in several developed countries. The Industrial Hollowing-out, caught attention of scholars foreign and domestic, means absolute reduction of total manufacturing,which is caused by migration of corporate entity’s capital, In recent years, some signs of industrial hollowing-out have appeared in China’s real economy, and new fictitious features have evolved:the corporate switch capital from corporate entity to asset markets of real estate and finance, and such behavior result in "relative reduction" of total manufacturing, reflecting the shock from the fictitious economy to the real economy.Amounts of researches have been done for the domestic industrial hollowing-out, however, most of them are mere macro description or based on qualitative method. This paper begins with the abnormal phenomenon of financial data in listed companies, and try to explore the mechanism of Industrial Hollowing-out from a microscopic point of view——Based on the business activities, researches are done on how operating earnings (behalf of the real economy) and financial earnings (behalf of the fictitious economy) influence mutually.In implementation, listed companies from the CSI 300 Index are selected as samples since they are representative of high-quality listed company and have high transparency of information. The framework of reconstruction theory by IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) in 2008 is incorporated into the annual financial statement data of sample companies, and the time period is four years since the 2008 financial crisis. The company’s consolidated income statement are reconstructed according to the IASB and FASB framework, operating earnings data and financial earning data obtained. First an Industrial Hollowing-out Index is applied in the measure the extent of hollowing-out from both sector and industry angle. Then two assumptions are established to describe the relationship of operating earnings and financial earnings, and an empirical work is carried out on several panel data models using overall samples and industry samples independently.Through empirical analysis, we concluded that:the Industrial Hollowing-out degree index of both the second industry and the third industry are showing an increasing trend, and the index of the second industry is higher than that of the third industry. Mechanism for the formation of Industrial Hollowing-out are as following: one is the losses in the financial investment of the last year, which has affected the entire company’s production capacity and overall strength, result in decrease in operating earnings of current year and the’hollow, the second is when the main business of the last year is unsatisfying, resources will be shifted to the virtual economy to seek profit, and this situation may also contribute to the occurrence of hollowing-out. companies of The second industry show the same law, when the virtual environment is of more profit, the company will focus on the operation of financial items, ignoring the main business that is relatively less profitable, thus lead to the occurrence of hollowing-out; The interaction between operating earnings and financial earnings of the third industry seems less obvious, only the last year’s operating earnings has a weak negative impact on the current financial earnings.