Economic policy uncertainty and corporate financialization: Evidence from China

Zhao, Yan; Su, Kun

doi:10.1016/j.irfa.2022.102182

Cited by 85 publications

(30 citation statements)

References 45 publications

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“…Zhu et al (2021) argue that although corporate financialization arises from many reasons, such as the agency behavior of managers, the change in corporate governance concepts, and the crisis of profitability, the main source is the high return temptation of financial assets. Zhao and Su (2022) also employ the entity intermediary theory to explain corporate financialization. Some firms have easier access to financing from banks and then lend their spare funds to other firms through credit, acting as an entity intermediary.…”

Section: Literature Backgroundmentioning

confidence: 99%

Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia

et al. 2022

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The purpose of this paper is to investigate whether managers with tax avoidance motivation also engage in corporate financialization. Using a large sample of Chinese A-share non-financial listed firms from 2009 to 2020, the empirical results show that there is a positive association between corporate tax avoidance and corporate financialization. Moreover, the positive effect of tax avoidance on corporate financialization mainly manifests in firms with myopic managers. Our results are robust to alternative measures of both tax avoidance and managerial myopia. Two-stage least squares (2SLS) regression and propensity score matching (PSM) confirm our results and mitigate any potential endogeneity issues. Overall, we show that the agency costs between shareholders and managers indeed play a critical role between tax avoidance and corporate financialization.

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Section: Literature Backgroundmentioning

confidence: 99%

Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia

et al. 2022

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“…We analyzed 1550 Chinese-listed local firms from 2011 to 2020. Applying effective and rigorous empirical methods of measuring financing constraints [15,18,19,91], corporate value [11], and multinationality [38,101,102]; and analyzing the data through the dynamic regression method [103], heterogeneity analysis [53][54][55], and 2SLS regression analysis [56,57], we demonstrate our theory. This study's main findings and their theoretical implications are threefold as follows.…”

Section: Instrumental Variables Analysismentioning

confidence: 84%

“…In terms of heterogeneity results, we not only refer to Dai and Zhang [53] but also Xue et al [54] for the analysis methods of different ownership types and firm sizes. We further extend the heterogeneity analysis at the level of financing constraints and multinationality based on the method of Zhao and Su [55]. After the analysis of various grouping methods, we further examine how financing constraints are still the main obstacle to the improvement of corporate value, especially for SOEs and large-scale enterprises.…”

Section: Introductionmentioning

confidence: 99%

Financing Constraints and Corporate Value in China: The Moderating Role of Multinationality and Ownership Type

2022

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Drawing on institutional theory and agency theory, this study examines the relationship between financing constraints and corporate value in China. In addition, we provide solutions for negative effects of financing constraints on corporate value in China. Chinese firms tend to utilize costly informal institutions to gain legitimacy and necessary resources from external stakeholders. This can lead to Chinese firms’ assuming higher financing transaction costs, negatively influencing corporate value. The multinational strategy of Chinese firms can further increase the financial burden of the company, and agency problems of state-owned enterprises (SOEs) can negatively affect the enthusiasm of managers, exacerbating the restraining effects of financing constraints on corporate value. We empirically analyze the non-financial companies listed on the Chinese stock market from 2011 to 2020 by using the methods of fixed effects and dynamic regression, heterogeneity analysis, and instrumental variables. The results show that financing constraints significantly inhibit corporate value. Accounting for the impact of differing degrees of multinationality and different types of ownership in enterprises, we empirically present the positive moderating effects of multinationality and ownership type in reducing corporate value in circumstances of financing constraints. Finally, we suggest ways for Chinese firms to overcome the negative effects of financing constraints on corporate value.

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“…The literature shows that various uncertainty indicators, tightly related to geopolitical risk, exert a significant impact on business risk. In fact, firms face more complexity in defining policy-related decisions in the presence operating uncertainties and unexpected jumps of earning volatility (Mirza and Ahsan, 2020; Wang et al ., 2021; Zhao and Su, 2022).…”

Section: Methodsmentioning

confidence: 99%

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

Mokdadi,

Saadaoui

2023

JRF

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PurposeThis paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.Design/methodology/approachThis study uses 5,223 firm-quarter observations on German-listed firms spanning 2010:Q1–2021:Q4. This study regresses the cost of debt financing on the geopolitical risk, accounting quality and other control variables. Information asymmetry is measured using the performance-matched Jones-model discretionary accrual and the stock bid-ask spread. It uses interaction terms to check if information asymmetry moderates the impact of geopolitical uncertainty on the cost of debts and control for the moderating role of business risk. For the sake of robustness check, it uses long-term cost of debt and bond spread as alternative dependent variables. In addition, this study executes instrumental variables regression and propension score matching to control for potential endogeneity problems.FindingsEstimation results show that geopolitical uncertainty exerts a positive impact on the cost of debt. This impact is found to be more important on the cost of long-term debts. Information asymmetry is found to exacerbate the positive impact of geopolitical risk on the cost of debt. These results are robust to the change of the dependent variable and to the mitigation of potential endogeneity. At high levels of information asymmetry, this impact is more important for firms belonging to “Transportation”, “Automobiles and auto parts”, “Chemicals”, “Industrial and commercial services”, “Software and IT services” and “Industrial goods” business sectors.Research limitations/implicationsGeopolitical uncertainty should be seriously considered when setting strategies for corporate financial management in Germany and similar economies that are directly exposed to geopolitical risks. Corporate managers should design a comprehensive set of corporate policies to improve their transparency and accountability during increasing uncertainty. Policymakers are required to implement innovative monetary and fiscal policies that take into consideration the heterogeneous impact of geopolitical uncertainty and information transparency in order to contain their incidence on German business sectors.Originality/valueDespite its relevance to corporate financing conditions, little is known about the impact of geopolitical uncertainty on the cost of debt financing. To the best of the authors’ knowledge, there is still no empirical evidence on how information asymmetry between creditors and borrowing firms shapes the impact of geopolitical uncertainty on the cost of debt. This paper tries to fill this gap by interacting two measures of information asymmetry with geopolitical uncertainty. In contrast with previous studies, this study shows that the impact of geopolitical uncertainty on the cost of debt is non-linear and heterogeneous. The results show that the impact of geopolitical uncertainty does not exert the same impact on the cost of debt instruments with different maturities. This impact is found to be heterogeneous across business sectors and to depend on the level of information asymmetry.

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Economic policy uncertainty and corporate financialization: Evidence from China

Cited by 85 publications

References 45 publications

Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia

Corporate tax avoidance and corporate financialization: The moderating effect of managerial myopia

Financing Constraints and Corporate Value in China: The Moderating Role of Multinationality and Ownership Type

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

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