Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financialization and Capital Accumulation in the Nonfinancial Corporate Sector: A Theoretical and Empirical Investigation on the US Economy, 1973-2004

Contents:

Author Info

  • Orhangazi, Ozgur

Abstract

Recent research has explored the growing ‘financialization’ process in the U.S. and other advanced economies. The term is a catch-all phrase used to denote important changes in the structure of non-financial corporations’ balance sheets, including the growth of income from financial subsidiaries and investment as well as growth in the transfer of earnings to financial markets in the forms of interest payments, dividend payments and stock buybacks. This paper seeks to empirically explore the relationship between financialization in the U.S economy and real investment at the firm level. Using data from a sample of non-financial corporations from 1973 to 2003, I find a negative relationship between real investment and financialization. First, increased financial investment and increased financial profit opportunities may have crowded out real investment by changing the incentives of firm managers and directing funds away from real investment. Second, increased payments to the financial markets may have impeded real investment by decreasing available internal funds, shortening the planning horizons of the firm management, and increasing uncertainty. These two channels can help explain the negative relationship I find between investment and financialization.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/7724/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7724.

as in new window
Length:
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:pra:mprapa:7724

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, Elsevier, vol. 32(5), pages 1167-1183, June.
  2. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 53-80, October.
  3. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 57(4), pages 1649-1684, 08.
  4. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report, Federal Reserve Bank of Minneapolis 45, Federal Reserve Bank of Minneapolis.
  5. Eisner, Robert, 1974. "Econometric Studies of Investment Behavior: A Comment," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 12(1), pages 91-104, March.
  6. James R. Crotty, 1990. "Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment of Keynes, Tobin, and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 12(4), pages 519-542, July.
  7. Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199240616, October.
  8. Ajit Singh, 2002. "Competition, corporate governance and selection in emerging markets," ESRC Centre for Business Research - Working Papers, ESRC Centre for Business Research wp247, ESRC Centre for Business Research.
  9. James Crotty, 2005. "The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era," Research Briefs, Political Economy Research Institute, University of Massachusetts at Amherst rb2003-5, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Léonce Ndikumana, 2003. "Financial Development, Financial Structure, and Domestic Investment: International Evidence," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2003-01, University of Massachusetts Amherst, Department of Economics.
  11. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness geewp14, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  12. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  13. James Crotty, 2002. "The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp44, Political Economy Research Institute, University of Massachusetts at Amherst.
  14. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1995. "Three Financing Constraint Hypotheses and Inventory Investment: New Tests With Time and Sectoral Heterogeneity," Macroeconomics, EconWPA 9510001, EconWPA, revised 09 Oct 1995.
  15. Glen, Jack & Lee, Kevin & Singh, Ajit, 2000. "Competition, corporate governance and financing of corporate growth in emerging markets," MPRA Paper 53625, University Library of Munich, Germany.
  16. Mayer, Colin, 1994. "The Assessment: Money and Banking: Theory and Evidence," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 10(4), pages 1-13, Winter.
  17. Feng, Hengyi & Froud,Julie & Johal, Sukhdev & Haslam, Colin & Williams, Karel, 2001. "A new business model?," Discussion Papers, Research Unit: Regulation of Work, Social Science Research Center Berlin (WZB) FS II 01-202, Social Science Research Center Berlin (WZB).
  18. Leonce Ndikumana, 1999. "Debt Service, Financing Constraints, and Fixed Investment: Evidence from Panel Data," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 21(3), pages 455-478, April.
  19. J. Nellie Liang & Steven A. Sharpe, 1999. "Share repurchases and employee stock options and their implications for S&P 500 share retirements and expected returns," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-59, Board of Governors of the Federal Reserve System (U.S.).
  20. Richard W. Kopcke & Richard S. Brauman, 2001. "The performance of traditional macroeconomic models of businesses' investment spending," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, pages 3-39.
  21. Baker, H. Kent & Powell, Gary E. & Veit, E. Theodore, 2003. "Why companies use open-market repurchases: A managerial perspective," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 43(3), pages 483-504.
  22. Bhaskar, V. & Glyn, A., 1992. "Investment and Profitability: The Evidence from the Advanced Capitalist Countries," Economics Series Working Papers, University of Oxford, Department of Economics 99144, University of Oxford, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Arestis, Philip & Singh, Ajit, 2010. "Financial globalisation and crisis, institutional transformation and equity," MPRA Paper 39054, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7724. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.