Does Institutional Investor Ownership Reduce Corporate Financialization? An Empirical Study for Chinese Enterprises

Abstract

In recent years, the financialization of real enterprises has gradually attracted extensive attention from all walks of life. In the period of rapid development of the financial industry at this stage, the funds held by enterprises are continuously withdrawn from the interior, poured into non-main financial fields, squeezed out R&D investment and fixed asset investment, and reduced the sustainable development ability of enterprises. Therefore, the problem of "from reality to emptiness" needs to be curbed urgently. It is urgent to restore and consolidate the pillar position of real industry in Chinese economy. Taking the A-share listed companies from 2007 to 2020 as the research sample, this paper studies the impact of institutional investor ownership on the level of corporate financialization. We find that institutional investor ownership can significantly reduce corporate financialization. This result is solid after re-estimating the regression model using the firm and year fixed effects model and adding more control variables into regression models. In addition, we also find that the effect of the constraints of institutional investors on corporate financialization is more pronounced in firms with Big 4 auditors.

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“…Moreover, Chen et al [57] argued that the family enterprise whose executives are second-generation successors is also more inclined to financial investment. However, executives' overseas background [58] and institutional investor ownership [59] can inhibit corporate financialization. What's more, good corporate governance, by reducing management myopia, also inhibits corporate financialization [30,60].…”