Financialization and Stock Volatility of Low-/High-Tech Manufacturing Firms in China: The Moderating Role of M&A

In recent years, the degree of financialization of manufacturing firms may be one of the key factors in the “real to virtual” transition of the Chinese economy. Using data on Chinese listed firms in the low-tech manufacturing sector over the period 2013–2018, this paper examines the relationship between financialization and stock market volatility, and how mergers and acquisitions (M&A) play a moderating role in this relationship. The results show that there is a positive relationship between financialization and stock market volatility, while M&A activity has a negative moderating effect on the relationship. The positive effect of financialization on stock volatility is more pronounced for high-tech firms than for low-tech firms, while the negative moderating effect of M&A on stock volatility is more pronounced for low-tech firms than for high-tech firms. The link between the financialization of high-tech firms and their volatility has been strengthened with the implementation of the Made in China 2025 program. The main conclusions are stabilized after fully accounting for multicollinearity and R&D capital investment. For high-tech firms, financialization has a more pronounced impact on the volatility of non-state-owned firms compared to state-owned firms (SOEs).