Abstract: This paper selects Chinese A-share listed companies from 2011 to 2021 as the research sample, and uses the inclusion of A-shares in the Mingsheng Emerging Markets Index (MSCI) in 2018 as a quasi-natural experiment of capital market internationalization, and employs a double-difference model to examine the impact of capital market internationalization on corporate financialization and its mechanism. Capital market internationalization is found to significantly reduce corporate financialization. The mechanism test finds that capital market internationalization has a positive governance effect on corporate financialization by enhancing the information content of stock prices and the efficiency of information transmission, increasing the transparency of corporate information and alleviating corporate financing constraints. Heterogeneity analysis shows that the governance effect of capital market internationalization on firms’ allocation of financial assets is more pronounced among non-state-owned firms and firms exposed to stronger industry competition. Further research finds that capital market internationalization can contribute to the improvement of firms’ total factor productivity by inhibiting firms’ financialization. The research in this paper provides new theoretical support for how capital market internationalization can stop economic entities being distracted from their intended purpose.

Key words: capital market internationalization, corporate financialization, information transmission efficiency, information transparency, industry competition