Summary:
This paper incorporates the explicit financial assets, shadow banking assets, and operational assets held by nonfinancial firms into the portfolio selection process, constructs a portfolio selection model containing these three different asset types, and deduces the layering driving mechanisms of the financialization of nonfinancial firms. The theoretical model shows that the proportion of firms' explicit financial investments depends on three factors: the adjustment return gap between explicit financial assets and operating assets, the adjustment return gap between explicit financial assets and shadow banking assets, and the relative risk of shadow banking assets and operating assets. These two adjusted return gaps essentially portray the profit potential from investing in financial assets compared with the other two asset types. The larger the gap, the greater the proportion of firms investing in explicit financial assets. That is, nonfinancial firms' traditional financial investment behavior is driven by their profit-seeking motive. The relative risk depicts the relative amount of the alternative assets of financial assets to the total risk of the portfolio. The higher the relative risk of alternative assets, the higher the proportion of financial assets is for the purpose of avoiding the investment risk of alternative assets. Therefore, risk aversion also drives nonfinancial firms' financial investments. The driving factors underlying the shadow banking investments by nonfinancial firms are similar to those of explicit financial investments. Compared with the literature, after the introduction of the third type of assets into the portfolio model, the denominators of the two adjusted gaps contain not only the investment risk corresponding to the two returns in their respective numerators, but also the investment risk of the remaining third asset type, indicating that with an increase in asset classes invested, the investment risks of various assets no longer appear separately in the investment decisions. This paper further collects and collates the shadow banking investment data for China's A-share listed nonfinancial firms from 2007 to 2018, calculates the asset scale of real firms' shadow banking activities, and then uses the data for empirical analysis together with the explicit financial assets and operational asset data to test the layering driving mechanism underlying the financialization of real Chinese firms. The baseline results show that real Chinese firms' explicit financial and shadow banking investments feature inertia and are both significantly driven by relative risks. However, the driving factors underlying these two assets are starkly different when considering gaps in adjusted returns. That is, explicit financial investments are mainly driven by the adjustment gap with shadow banking assets, while shadow banking investments are driven by the adjustment gap with operating assets. These results reveal a very rich amount of information. First, the financialization of firms at different levels is clearly significantly affected by the relative risk of alternative assets. The higher the risk of alternative assets, the more motivated firms are to conduct their financialization activities. Second, there are subtle differences in the considered interest rate target when firms conduct different financialization activities. The key is that firms do not directly consider the rate of return for operating assets when making explicit financial investments, but they do consider this factor when conducting shadow banking activities. This finding is consistent with this paper's theoretical model. Hence, these results also highlight the need to include shadow banking investments in financialization activities to achieve a more comprehensive understanding of the driving mechanism underlying the financialization of real firms. Incorporating monetary factors into the baseline model reveals that the year-on-year growth rate in the money supply also has different impacts on the two levels of financialization behavior by real Chinese firms. Increases in the money supply significantly inhibit real firms' explicit financial investments, but they have no significant influence on their shadow banking investments. These results indicate that monetary expansion is far from responsible for the financialization trend in China's real sector. In contrast, increasing money supply may ease real firms' liquidity constraints, reduce the “risk aversion” characteristic of explicit financial investments, and eventually curb these firms' traditional financial investments. Monetary factors have no significant impact on shadow banking investments, which echoes the baseline model results. If monetary factors cannot effectively improve the return rates from operational investments, it may be challenging to guide real firms to “return to their main business.” In summary, real Chinese firms show explicit and implicit levels of financialization. In addition, the common feature of the layering driving mechanism is that it is significantly driven by relative risks. The relative rate of return with operating assets drives only shadow banking investments without affecting explicit financial investments. From the perspective of policy implications, decision-makers should consider improving the operating environment of real firms, reducing the risks of real investments, and enhancing the resilience of the real economy to major exogenous shocks in guiding the real economy to “return to their main business.”
张成思, 郑宁. 中国实业部门金融化分层驱动机制[J]. 金融研究, 2023, 515(5): 1-19.
ZHANG Chengsi, ZHENG Ning. The Mechanisms behind the Hierarchical Financialization of Real Sector Firms in China. Journal of Financial Research, 2023, 515(5): 1-19.
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