Exploring Nonlinear Linkage between Corporate Financialization and Innovative Efficiency: Identification and Governance of Excessive Financialization*

Abstract This paper investigates the underlying causes of the nonlinear link between financial asset holdings and innovative efficiency. It identifies an inverted U‐shaped pattern linking corporate financialization to innovation, with financing restrictions, agency costs, and business risk serving as some of the relationship's partial mediating factors. By categorizing financial assets into short‐term monetary and long‐term nonmonetary types, it reveals heterogeneous effects on innovative efficiency, suggesting that the impact is not solely crowding out or a pulling effect but varies based on asset type and proportion. Additionally, it argues for continual adjustment of proper corporate financialization levels based on firm‐specific factors and changing external conditions. Notably, excessive financialization appears less prevalent among Chinese firms, with internal governance and external environmental enhancements recommended to optimize financialization for innovation.