How Does Corporate Financialization Affect Operational Risk in Textile Firms? Evidence from China (Industria Textila)

Summary

• The study analyzes Chinese A-share listed textile, apparel, and chemical fibre firms over the sample period from 2007 to 2024 to examine the impact of financialization on operational risk.p.1
• A one-standard-deviation increase in corporate financialization is associated with a 1.48% rise in operational risk.p.3
• Financialization affects operational risk through two key channels: crowding out physical capital investment and increasing corporate opacity.p.1
• Cross-sectional analysis demonstrates that the positive effect of financialization on operational risk is more pronounced when managerial myopia is high.p.7
• Higher internal control quality and extensive media coverage help attenuate and mitigate the positive relationship between corporate financialization and operational risk.p.3

Key insights

1. Corporate financialization significantly increases operational risk in China's listed textile firms.p.1
2. Managerial myopia amplifies the positive impact of financialization on operational risk.p.7
3. Financialization weakens core business competitiveness by crowding out necessary real capital investments.p.4
4. Allocation of assets to financial activities exacerbates internal and external information asymmetry by increasing corporate opacity.p.3
5. Robustness tests using instrumental variables and propensity score matching confirm that financialization directly drives higher operational risk.p.8
6. High operational risk in core operations does not drive financialization; rather, financialization acts as the cause of elevated risk.p.9
7. Effective internal control systems serve as an internal governance tool to restrain financialization risks and information manipulation.p.10
8. External media coverage exercises reputational pressure on management, constraining speculative financial investments and encouraging core business capital allocation.p.11