Descriptive statistics.

The negative impact of the financialization of non-financial firms cannot be ignored in China. However, existing studies neglect that the government environmental governance is an important influential factor in corporate investment decisions. Using a sample of China’s non-financial listed firms from 2007 to 2020, we examine the impact of local governments’ energy-saving target constraints on the financialization of local firms in terms of whether local governments set numerically specific energy-saving targets in the Government Work Reports. The main findings of this paper are as follows. First, local governments setting clear energy-saving targets inhibit local firms’ financialization and the result holds even after a series of robustness tests. Second, the negative association between local governments’ energy-saving target constraints and firm financialization is more pronounced among firms in eastern regions and green provinces. Third, the quality of firm information disclosure and local environmental public supervision enhance the inhibiting effect of local governments’ energy-saving target constraints on firm financialization. Fourth, local governments’ energy-saving target constraints restrain firm financialization by attracting more external analyst coverage and encouraging internal technological innovation. Moreover, this inhibiting effect can help reduce overinvestment and improve the total factor productivity of firms. Our study provides evidence supporting firm financialization studies from the novel perspective of government environmental governance.