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3043In recent years, much profit-seeking real capital has strayed outside the central financial supervision system, prompting localities to become the hardest hit by various financial chaos. Thus, implementing the local financial supervision reform is significant in promoting the return of finance to the real economy.
Using the quasi-natural experiment of local financial “office-promoted-to-bureau” in 2018, this paper investigates whether the local financial supervision reform can promote the return of entity enterprises to their basics. The empirical results show that the local financial supervision reform significantly inhibits the financialization of entity enterprises. Further analysis suggests that the local financial supervision reform squeezes out financial assets allocated by entity enterprises for “profit-seeking motives”, which is achieved by blocking the channels for shadow banking participation and informal financial investment. In addition, the local financial supervision reform promotes the return of entity enterprises to their basics by improving their investment and performance of the main business. Heterogeneity analysis shows that the inhibitory effect of the local financial supervision reform on the financialization of entity enterprises is mainly reflected in regions with a poorer institutional environment, a higher degree of fiscal decentralization, a larger issuance of municipal corporate bonds, and a lower degree of banking competition.
This paper has the following marginal contributions: First, it focuses on the relationship between the local financial supervision reform and the return of entity enterprises to their basics, expanding in depth the literature on the real economy effect of the financial supervision reform. Second, it accurately assesses the policy effect of the local financial supervision reform, which is a meaningful supplement to the relevant literature on the evaluation of local financial supervision effectiveness. Third, it analyzes the mechanism through which the effect of the financial supervision reform is transmitted to entity enterprises, contributing to a deeper understanding of how to guide the rational return of finance to the real economy.
In terms of policy suggestions, on the one hand, there is a need to harmonize the division of powers and responsibilities between the central and local governments, strengthen the governance of regional financial chaos, and improve local financial supervision; on the other hand, local financial supervisors should strengthen comprehensive local financial supervision, and highlight functional and behavioral supervision. In addition, in the process of strengthening local financial supervision, attention should also be paid to optimizing the institutional environment.
