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Financialization and Capital Accumulation in the Non-Financial Corporate Sector

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  • Özgür Orhangazi

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.

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Bibliographic Info

Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp149.

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Date of creation: 2007
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Handle: RePEc:uma:periwp:wp149

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Keywords: Financialization; capital accumulation; corporate governance; investment; financial markets;

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References

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  1. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Antonio Bianco & Paolo M. Piacentini, 2013. "The sustainability of a creative-finance-led economy," Working papers wpaper07, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  2. Özgür Orhangazi, 2011. "“Financial” vs. “Real”: An Overview of the Contradictory Role of Finance," Working Papers wp274, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. Eckhard Hein, 2009. "‘Financialisation’ in a comparative static, stock-flow consistent post-kaleckian distribution and growth model," EKONOMIAZ, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 72(03), pages 120-139.
  4. Georgios Argitis & Stella Michopoulou, 2011. "Are Full Employment and Social Cohesion Possible Under Financialization?," Forum for Social Economics, Springer, vol. 40(2), pages 139-155, July.
  5. Eckhard Hein, 2009. "A (Post-) Keynesian perspective on "financialisation"," IMK Studies 01-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  6. Leila E. Davis, 2013. "Financialization and the nonfinancial corporation: an investigation of firmlevel investment behavior in the U.S., 1971-2011," UMASS Amherst Economics Working Papers 2013-08, University of Massachusetts Amherst, Department of Economics.
  7. Karanassou, Marika & Sala, Hector, 2013. "Distributional Consequences of Capital Accumulation, Globalisation and Financialisation in the US," IZA Discussion Papers 7244, Institute for the Study of Labor (IZA).
  8. Eugenio Caverzasi, 2012. "From the Financial Instability Hypothesis to the theory of Capital Market Inflation: a structural interpretation of the sub-prime crisis," DEM Working Papers Series 018, University of Pavia, Department of Economics and Management.
  9. Giorgos Argitis & Stella Michopoulou, 2013. "Studies in Financial Systems No 4 Financialization and the Greek Financial System," FESSUD studies fstudy04, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  10. Christian Schoder, 2012. "Instability, stationary utilization and effective demand: A synthesis of Harrodian and Kaleckian growth theory," IMK Working Paper 104-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  11. Russo, Alberto, 2012. "Elements of novelty, known mechanisms, and the fundamental causes of the recent crisis," MPRA Paper 41088, University Library of Munich, Germany.
  12. Robert Pollin & James Heintz, 2013. "Study of U.S. Financial System," FESSUD studies fstudy10, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  13. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Financialisation and Crisis in an Agent Based Macroeconomomic Model," MPRA Paper 51074, University Library of Munich, Germany.
  14. Eugenio Caverzasi, 2014. "Minsky and the Subprime Mortgage Crisis: The Financial Instability Hypothesis in the Era of Financialization," Economics Working Paper Archive wp_796, Levy Economics Institute.

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