Abstract
Using the ratio of risky financial assets to total assets to proxy for financialization, we examine the contributing factors, sources, and economic consequences of firm-level financialization in a sample of Chinese firms from 1998 to 2019. Our findings suggest that: 1) there is an increasing trend of firm-level financialization, 2) The increase in financialization is driven by an increase in a firm's increase in financial assets, 3) occasional cash flows, such as sales of assets, together with operating cash flows and cash flows from debt and equity are the sources of funding for financialization, and 4) the effect of financialization on a firm's performance, while negative, exhibits a U-shape non-linear effect. We show that financialization is a long-term trend, and it has a generally negative effect on firm performance.
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