Does financialization affect firm' R&D investment? Evidence from China

This paper explores the impact of financialization on firms' R&D investment and innovation. Based on listed companies in Chinese stock markets, we find that financialization significantly inhibits firms' R&D investment. To further investigate the above relationship, we introduce the square of the financialization into the regression and find that there is a significant inverted-U relationship, indicating that moderate financialization can promote corporate innovation, while excessive financialization significantly inhibits it. Our findings enhance our understanding the determinants of financialization on R&D investment. In addition, we also provide policy implications for regulators that are concerned with corporate financing and innovation.