Chinese Entity-Enterprises’ Financializat Ion,Stock Price Crash Risk And Cost Of Equity

Recently,with the continuous deepening of economic structural reform and the rapid development of the financial industry,many non-financial entities have reallocated resources between main business operation and financial investment,and the degree of financialization has gradually deepened,which leads to a significant raise in the uncertainty of the overall earnings of enterprises.According to different motivations of management of enterprises to financialize,financialization has two effects on the operation status: crowding out effect and complementary effect,and financialized investment also has two different influences on stock price crash risk.The volatility of stock price crash risk directly affects the interestof equity investors,and the returns required by equity investors are adjusted based on the risks.This paper selects Chinese non-financial A-share listed companies from 2010 to2019 as research samples,explains the meaning and motivationsoffinancialization,and analyzes specific economic consequences of entities’ financialization.Firstly,it analyzes the relationship between financialization and stock price crash riskand the functional motivations of the relationship.Secondly,it studies the correlation between financialized investment and cost of equity,including the intermediary role of the stock price crash risk.Thirdly,it explores the differences among the relationship among financialization,stock price crash risk and cost of equity for listed companies with different property rights.The results of this paper show that:(1)With unchanged remaining conditions,there is a negative correlation between Chinese entities’ financialization and stock price crash risk,and there is a complementary effect between main business operation and financialization investment.(2)Driven by the purpose of "long-term strategy",the increasing degree of financialized investments plays the role of "reservoir",and there is a negative correlation between financialization and cost of equity;(3)Entities’ financialized investments reduce equity investors’ required return by reducing stock price crash risk,andthe required return rate of equity investors decreases with the reduction of stock price crash risk;(4)Property rights have adjusting effect on the relationship among financialization,stock price crash risk and cost of equity,and private listed enterprises have a more significant adjusting effect on these three factors.Based on the above research and analysis,this paper proposes the following suggestions: Firstly,entities could appropriately determine the degree of financialized investment,realize the optimization of resource allocation,and try to give a role play to the complementary effect of financialized investment on main business operation;Secondly,entities need toenhance the supervisionof internal management,and take the financialization as a way to control risks and costs;Thirdly,governments and market of securitiessupervision departments shall do a good top-level design,guide the extent of the enterprise effectively deepen financialization,virtually control disclosurequalityof information and safeguardinterests of investors,reducethe possibility of increasedcost of financingdue to increasing risk exposure,help investors of equity analyze actual value of entities and effectively adjust transaction behavior.