The Impact of Tax Administration on Corporate Financialization

Abstract

In recent years, the tendency of non-financial enterprises to “shift from real to virtual,” characterized by increasing engagement in financial assets and activities, has drawn growing attention. Against this backdrop, how to curb excessive corporate financialization and encourage the reallocation of capital toward the real economy has become an important issue in both academic research and policy practice. Using a sample of non-financial listed firms from China’s Shanghai and Shenzhen A-share markets over the period 2012–2024, this study constructs an index of regional tax administration intensity and examines its relationship with corporate financialization. The empirical results suggest that stronger tax administration is associated with a noticeable reduction in the degree of corporate financialization. Further analysis shows that this inhibitory effect is not uniform across firms. It is more evident among non-state-owned enterprises, firms with a higher share of executives with financial backgrounds, and those facing relatively higher agency costs. From the perspective of external governance, particularly the role of tax administration, the study extends existing discussions on the determinants of corporate financialization. It also offers evidence that may be relevant for policymakers seeking to design more differentiated regulatory approaches, with the aim of encouraging firms to reorient resources from financial activities back to productive investment in the real economy.