Financialization and Capital Accumulation in the Non-Financial Corporate Sector
AbstractRecent 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.
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Bibliographic InfoPaper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp149.
Date of creation: 2007
Date of revision:
Financialization; capital accumulation; corporate governance; investment; financial markets;
Other versions of this item:
- Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 863-886, November.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- D2 - Microeconomics - - Production and Organizations
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
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