How does corporate financialization affect operational risk? Evidence from Chinese listed companies

Using a sample of China’s non-financial listed companies from 2009 to 2020, this paper examines the impact of corporate financialization on operational risk. Our results show that there is a positive relationship between corporate financialization and operational risk, indicating that the risk amplification effect of corporate financialization is dominant, and this effect is more pronounced among companies with higher financing constraints. The analysis of the impact mechanism shows that corporate financialization fails to alleviate underinvestment by means of capital ‘reservoir’, but will lead to an increase in operational risk by damaging the profitability of the company’s main business. In addition, we find that product market competition mitigates the risk amplification effect of corporate financialization. The conclusions of this paper have certain significance for the government and corporations to understand the microeconomic consequences of financialization.