Does economic policy uncertainty exacerbate corporate financialization? Evidence from China

Nowadays, academics and governments are increasingly concerned about the growing size of non-financial enterprises' ownership of financial products. Taking corporations listed in the Chinese stock market as the research sample, this study investigates the impact of Economic Policy Uncertainty on corporate financialization. We find that EPU will exacerbate corporate financialization, which is robust after conducting a series of estimation tests. Further investigation reveals that financing constraints may be the primary channel by which EPU motivates corporate booming financial product holdings. The exacerbation effects are particularly prominent in firms with small size, non-SOEs, weak corporate governance, and firms at a low growth stage. Overall, our results provide a novel explanation for the behaviour of corporate financialization in emerging capital markets.