Does Green Finance Reform and Innovation affect Corporate Financialization? Evidence from China

In 2017, China introduced the Green Finance Reform and Innovation Pilot Zones (GFRI) policy, underscoring its commitment to fostering sustainable and low-carbon economic growth. This pilot policy exerts a significant influence on corporate business strategies. Meanwhile, the financialization (CF) may hinder the sustainable development of traditional firms. By using dataset of China’s listed companies from 2012 to 2021, this study implements the difference-in-differences (DID) method to investigate the impact of GFRI on CF and its underlying mechanism. The main findings are as follows. (1) The implementation of GFRI has significantly enhanced CF. (2) The positive impact is particularly pronounced in corporates of the eastern regions, non-state-owned entities, those with low ESG scores, and whose manager team lacks financial expertise. (3) GFRI’s promotion effect on CF is a short-term speculative behavior driven by "reservoir" and profit maximization motivations. Our study clearly identifies the causal relationship between GFRI and CF and reveals the driving force behind corporate’s business strategy. Policy implications are put forward accordingly.