Abstract: Against the backdrop of increasingly prevailing financial asset allocation in industrial companies, corporate financialization is becoming a common focus of academia and industry. While existing researches mainly concentrate on the analysis of incentives at the macro level, there is still a lack of research to provide micro-evidence in the emerging markets. Consequently, this paper studies non-financial and non-real estate listed firms by conducting theoretical analysis, model deduction and empirical test, and depicts the impact of investor sentiment on the financialization of entity enterprise from the perspective of behavioral finance. The results show that the mispricing of stocks caused by investors’ sentiment will significantly increase the level of financialization of industrial companies. Meanwhile the degree of equity financing dependence and the level of managerial compliance will strengthen the positive relationship between the two. Further, the above-mentioned relationship varies significantly among enterprises with different property rights and in different economic periods. From the perspective of behavioral finance, the paper expands the research on the mechanism of financialization of entity enterprise, which helps identify the role of market sentiment in the allocation of financial assets, and provides a theoretical basis for regulators to manage market sentiment and standardize the process of equity financing. This paper also helps industrial companies and minority investors to circumvent the risks and speculation in the investment and financing process.

Key words: behavioral finance, investor sentiment, financialization of industrial companies, equity financing dependence, managerial compliance