The Impact Mechanism between the Incentive to Hold Financial Assets, Financial Risk and Innovation Activities

Abstract

With the deepening of economic globalization and financialization of China ’ s economy, the proportion of financial assets held by non-financial enterprises has gradually increased, and income from financial assets has become an important part of the operating income of enterprises, thereby influencing their innovation activities.This study constructs an econometric model using a total of 17855 firm-years panel data of non-financial listed companies in China A-shares from 2009 to 2019 as the research sample, and empirically analyzes the influence mechanism between financial asset allocation incentives and corporate financial risk and enterprise innovation through fixed-effects regressions. The results indicate that the incentive to hold financial assets and financial risk have a crowding-out effect on an enterprise’s innovation activities. We also find that enterprises with different ownership types and technological levels respond differently when faced with an incentive to hold financial assets, which brings about heterogeneous effects on innovation outputs. Finally, this study proposes relevant policy recommendations at both the government and the enterprise levels to address the financialization of real enterprises and non-financial enterprises’ deviation from their main business to the virtual economy.