Does government funding promote or inhibit the financialization of manufacturing enterprises? Evidence from listed Chinese enterprises

Abstract

This study examines how government funding type affects the financialization of manufacturing enterprises in China and discusses the different impacts of environmental factors. Funding for production can induce managers to increase expenses and reduce main business income by assigning social objectives, promoting corporate financialization. However, state-owned enterprises (SOEs) may suffer from soft budget constraints and ignore short-term revenue; enterprises in competitive industries tend to hold cash for precautionarymotivation. Therefore, their financialization is insensitive to government funding. In addition, funding for interest can inhibit corporate financialization by increasing debts for non-SOEs and those with financial background employees or facing strong financingconstraints, because they are lacking in capital or sensitive to financial risks.