Performance shortfalls and financialization of non-financial enterprises in China

Abstract

Purpose Based on the theory of performance feedback, this study aims to explore the theoretical relationship between performance shortfalls and the financialization of non-financial enterprises. It further analyzes the moderating effect of economic policy uncertainty (EPU) and organizational redundant resources. Design/methodology/approach Multiple regression analysis is used on 16,555 initial samples of 2,658 Chinese A-share issuing enterprises from 2007 to 2019 to empirically test the relationship between performance shortfalls and the financialization of non-financial enterprises, and an instrumental variables-generalized moments estimation model is also used to verify the robustness of the results. Findings The results reveal that the greater the performance gap below the aspiration level, the higher the degree of enterprise financialization. Moreover, EPU strengthens the relationship between performance shortfalls and financialization, whereas organizational redundant resources weaken the relationship between performance shortfalls and financialization. Practical implications Decision-makers should determine the aspirated performance level of enterprises to make investment decisions that are most conducive to the long-term development of enterprises. Each enterprise should establish scientific management evaluation and supervision systems to avoid financial investment behaviors that place too much emphasis on short-term performance. Originality/value This study finds that financialization is one of the reactions when performance of enterprises is lower than the aspiration level, thus expanding the functional dimensions of performance feedback and supplementing the research on the influencing factors of enterprise financialization. The results also reveal information about situational factors, helping identify the boundary conditions through which performance below aspirations affects enterprise financialization.