Can accounts receivable factoring restrain corporate financialization? Evidence from China

Abstract

This study examines the effect of accounts receivable factoring on corporate financialization based on a sample of Chinese listed firms from 2008 to 2022. We find that engaging in factoring can significantly restrain corporate financialization, and this finding is robust to a battery of sensitivity checks. Path analyses reveal that factoring impedes corporate financialization by alleviating firms’ financial constraints, reducing their financial risks, and lowering agency costs. Cross-sectional analyses further demonstrate that the negative effect of factoring on financialization is more pronounced among small firms, firms with lower market positions, and those with weaker governance mechanisms. Moreover, the role of factoring is more prominent in high-tech firms, firms subject to fiercer industry competition, and those located in regions with advanced financial markets and sound legal systems. Finally, we document that financialization indeed damages corporate performance, and factoring can mitigate such adverse effects. Overall, this paper identifies a novel factor that can restrict corporate financialization and provides new insights into the role of accounts receivable factoring.