Commodity financialization and firm investment:Implications for market efficiency and economic stability in emerging markets

Investment decision-making is the cornerstone of capital operations. Real investments play a critical role in enabling companies to gain a long-term competitive advantage and maintain stable, sustainable growth in highly competitive markets. In the current economic environment, the financialization of commodities has become increasingly prominent, representing a significant external uncertainty factor for businesses. There is currently a lack of sufficient theoretical support and empirical research on whether the financialization of commodities promotes or inhibits corporate real investment, warranting further exploration and validation.This study examines the effect of commodity financialization on firm investment and the underlying mechanisms driving this relationship using a sample of Chinese listed firms. It focuses on the core area of real investment, delving into the intrinsic drivers of decision-making behaviors and thoroughly uncovering the pathways of their interaction. Expanding on this, the study further explores the heterogeneous effects of environmental dynamism and munificence, as well as the impact of commodity financialization on investment efficiency.Findings indicate that commodity financialization results in a significant decline in firm investment. The use of derivatives and engagement in financial activities exhibit partial mediating effects on the relationship between commodity financialization and firm investment. Customer concentration and industry competition can significantly moderate the effect of commodity financialization on firm investment. Furthermore, the effect of commodity financialization on firm investment is more pronounced in more dynamic and munificent environments. Finally, we find that commodity financialization is negatively associated with firm investment efficiency.