Corporate Financialization, Executive Equity Incentives And Risk-takin

In recent years,affected by the rising cost of raw materials and human resources,overcapacity and other reasons,the profit margin of real industries has continued to decline under the increasingly saturated market demand.Entity enterprises cannot obtain the expected rate of return through the commodity market,and their willingness to take risks is obviously insufficient.At the same time,the financial industry has ushered in a golden period of development.The endless innovation of derivative financial assets and the emergence of Internet finance make the profit margin of the financial industry far exceed that of the real industry.The fact of excess return in the financial industry has led to the transformation of enterprise investment decision-making.Driven by the pursuit of capital profit,entity enterprises have invested a large amount of funds in industrial capital in the financial market,resulting in the increasing proportion of financial assets and profits from financial channels,and gradually forming the phenomenon of enterprise financialization.The financialization of more and more real enterprises will eventually lead to the development trend of China’s economy from real to virtual.Existing studies generally believe that enterprise financialization will bring "reservoir" or "crowding out" effects to the business performance and value of enterprises.How the financial investment of real enterprises affects the risk-taking is an urgent problem to be solved.Under the background of China’s economy entering the new normal and high-quality development stage,it is of great practical significance to explore the relationship between enterprise financialization and risk-taking.In view of this,this thesis first explores the mechanism of the impact of enterprise financialization on risk-taking based on the preventive savings theory and investment substitution theory,takes the financial data of A-share non-financial listed companies in Shanghai and Shenzhen from 2013 to 2019 as the research object,constructs an individual time-point double fixed effect model,and empirically investigates the relationship between enterprise financialization and risk-taking,as well as the difference between state-owned enterprises and non-state-owned enterprises,Then,according to the liquidity characteristics of assets,this thesis further divides financial assets into transaction and non transaction,and tests the impact of the financialization of different types of financial assets on risk-taking.Finally,based on the principal-agent theory and equity incentive theory,this thesis explores the regulatory effect of executive equity incentive on the relationship between enterprise financial melting and risk-taking.The research shows that:(1)enterprise financialization has an obvious "crowding out effect" on risk-taking,that is,the higher the degree of enterprise financialization,the lower the risk-taking ability.(2)The grouping test based on the nature of property rights shows that the "crowding out effect" is only significant in non-state-owned enterprises,but not in state-owned enterprises.(3)Enterprises investing in trading financial assets with strong liquidity will have a "crowding out effect" on risk-taking,while investing in non trading financial assets such as long-term equity investment and investment real estate has no significant impact on risk-taking.(4)Executive equity incentive does not alleviate,but strengthens the negative impact of enterprise financialization on risk-taking in the same direction,which shows that it is not desirable for enterprises to alleviate the "crowding out effect" through equity incentive.Based on the above research conclusions and combined with the current development status of non-financial listed companies,this thesis suggests that:(1)the financial investment of enterprises should follow the principle of "finance serves the entity".Non financial enterprises should focus on industrial operation.On the premise of giving priority to the development of their main business,they should reasonably allocate financial assets according to their own actual situation,reduce the allocation proportion of transactional financial assets,avoid the blindness of allocating financial assets to obtain short-term benefits,and ensure that the resources of enterprise risk-taking projects are not excessively squeezed out.(2)We will strive to improve the physical investment and financing environment and promote enterprises to actively take risks.The government should take measures to reduce the operating costs of real enterprises,speed up the transformation and upgrading of real enterprises,and narrow the profit difference between real investment and financial investment in multiple ways,so as to attract real enterprises to focus on their main business and actively take risks.(3)Government departments should strengthen the supervision of financial investment of non-state-owned enterprises.Government intervention and guidance play a positive role in curbing the excessive financialization of enterprises.(4)In terms of internal governance,enterprises can strengthen the supervision of executives in disguise by reducing the shareholding proportion of executives,so as to curb the short-term behavior of executives’ financial investment arbitrage.