Corporate Financialization and Innovation Investment in China: Disentangling the Crowding-Out Effect and Reservoir Effect Under Economic Policy Uncertainty

This study investigates the relationship between corporate financialization and innovation investment in Chinese manufacturing firms under the backdrop of economic policy uncertainty (EPU). We systematically examine the dual mechanisms through which financialization simultaneously supports and constrains innovation via its reservoir and crowding-out effects. Our findings reveal a robust inverted U-shaped relationship between financialization and R&D expenditure, which is significantly moderated by EPU. Notably, financialization predominantly enhances R&D expenditure for most firms in our sample, challenging conventional perspectives on the financialization–real investment nexus. Further analyses indicate that alleviating financing constraints serves as a fundamental mechanism through which financialization fosters innovation investment. However, elevated EPU exacerbates financing constraints, attenuating the reservoir effects of financialization on innovation activities.