Industrial policy and non-financial corporations' financialization: evidence from China

Using the Chinese listed firms from 2007 to 2015 as a sample, we examine how industrial policy affects the financialization of non-financial corporations (NFCs). We find that industrial policy reduces the level of the financialization of NFCs. Further evidence shows that industrial policy lowers firms' motivation to ease financial constraints and mitigates operating risks. This effect becomes more substantial in the regions with a higher level of marketization and stronger government financial capacity. Our findings have important policy implications for the emerging countries to promote real economic growth and curb the 'shifting from the real economy to the virtual economy'.