Exploring Nonlinear Linkage between Corporate Financialization and Innovative Efficiency: Identification and Governance of Excessive Financialization*

This paper investigates the underlying causes of the nonlinear link between financial asset holdings and innovative efficiency. It identifies an inverted U-shaped pattern linking corporate financialization to innovation, with financing restrictions, agency costs, and business risk serving as some of the relationship's partial mediating factors. By categorizing financial assets into short-term monetary and long-term nonmonetary types, it reveals heterogeneous effects on innovative efficiency, suggesting that the impact is not solely crowding out or a pulling effect but varies based on asset type and proportion. Additionally, it argues for continual adjustment of proper corporate financialization levels based on firm-specific factors and changing external conditions. Notably, excessive financialization appears less prevalent among Chinese firms, with internal governance and external environmental enhancements recommended to optimize financialization for innovation.