Regulatory risk perception and corporate financialization: evidence from China

Abstract This paper investigates the effect of regulatory risk perception on corporate financialization in China. Using the method of keyword search, we quantify regulatory risk perception in China based on the text data of listed companies’ annual reports. With the sample of Chinese A-share companies from 2011 to 2024, we find robust evidence that regulatory risk perception significantly curbs corporate financialization. Meanwhile, our results also indicate that this effect is stronger in non-SOEs (non-state-owned enterprises), firms at the maturity and decline stages, and firms with lower risk preference and lower market position. Finally, we propose that easing financing constraints, reducing corporate tax avoidance and alleviating corporate credit mismatches are plausible channels through which regulatory risk perception decreases corporate financialization. Overall, we shed light on the real effects of regulatory risk perception and the determinants of corporate financialization.