Equity incentives and dynamic adjustments to corporate financialization: Evidence from Chinese A-share listed companies

Abstract

Corporate financialization is a double-edged sword. Holding financial assets properly might bring capital benefits to enterprises, while excessive financialization increases risks and hinders enterprises' sustainable development. This paper's sample comprises 2007–2018 panel data on Chinese A-share listed companies. Target financialization level and equity incentives' influence on dynamic adjustments to the level of corporate financialization are studied using a mean regression model, partial adjustment model, and system generalized moment estimation method. The results show that an enterprise has a target financialization level; when deviating from this target, the level of financialization will be adjusted towards the target. Equity incentives can promote dynamic adjustments of corporate financialization when the level is higher than its target.