The Impact of Risk Investment on Enterprise Financialization -Based on the Sample Study of Non-financial Listed Enterprises in China

This paper attempts to examine whether and how the development of venture capital in emerging markets affects the financialization in non-financial enterprise. For this purpose, we adopt the PSM-DID method and use the panel data from the Chinese listed enterprises from 2008 to 2019 to verify the relationship between venture capital and the financialization of non-financial enterprises. By demonstrating the impact of venture capital on the financialization of non-financial enterprises, we contribute to the existing literature on the financialization of enterprises. The main conclusions of this paper are as follows. First, there exists a significantly negative effect of VC on corporate financialization, and the effect presents a U-shaped curve dynamic characteristic over time. Specifically, the best microeconomic effect is achieved in the first year after VC entry, which makes the level of CF decrease by 19.7%. Even in the third year of VC entry, VC still plays an imperative role in mitigating the level of CF. The theoretical contribution of this paper to financialization lies in the following aspects. First, by linking the rapid development of VC in China with the trend of non-financial firms investing in financial assets, this paper examines the drivers of corporate financialization from the perspective of VC participation, enriching and expanding the literature on the drivers of corporate financialization. While the previous studies have provided explanations in terms of business diversification, fiscal policies, this paper adds to the existing literature on the value of VC by providing evidence on its role in reducing corporate financialization from the perspective of VC equity participation, a market-based investment and financing mechanism, and also provides novel explanations for the declining trend of non-financial enterprises investing in financial assets. Second, in terms of identification strategy, the existing literature largely uses the traditional econometric methods to study the economic effect of VC, such as the propensity score matching (PSM) method OLS method without paying attention to omitted variables and sample selectivity bias. This paper adopts PSM-DID method to investigate the causal effect between VC entry and corporate financial asset investment by taking non-financial firms’ access to first-round VC support as an exogenous policy shock, thus making the results more reliable and convincing.