Will the luxury culture of the financial industry spread to non-financial companies? Based on empirical evidence of corporate financialization

Abstract

China is the second-largest economy in the world. Recently it has shown a significant trend of financialization. The financial industry is becoming increasingly influential across the whole country. However, there is much negative information about its prevalent luxurious lifestyle. According to the finding presented in this paper, corporate financialization may cause the luxury culture of the financial industry to spread to non-financial companies, and the excessive perquisites reflect the luxury consumption of non-financial companies’ managers. This paper aims to determine the relationship between corporate financialization and excessive perquisites, as well as explore the mutual relationship between the two, in particular the role of luxury culture. Based on a sample of A-share companies listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2021, this paper uses the difference between the total perquisites and the expected normal perquisites determined by economic factors to identify excessive perquisites. The Penman-Nissim framework is employed to measure corporate financialization and OLS regression analysis is performed. The empirical results show that the phenomenon of corporate financialization has a significant positive impact on excessive perquisites. Further research shows that such an impact is only evident during the period associated with established luxury culture excessive perquisites. This relationship can also be influenced by the skills and professional experience of managers, the level of corporate cash holdings, and investment income. This paper confirms the effect of luxury culture on firms’ financial behaviour and identifies new factors influencing excessive perquisites.