‘Downsize and distribute’ or ‘merge and monopolize’: a critique of corporate financialisation theories

A growing literature has explained the persistent gap between profit levels and subdued investment by pointing to shareholder value imperatives and the associated pressure to ‘downsize and distribute’ (DD). Using multi-decade firm-level data and refining key measures of capital, payouts and investment (to account for intangibilisation, economic depreciation and net flows), this paper finds that the commonly invoked ‘profit–investment puzzle’ does not characterise the entire financialisation era but only becomes pronounced after the year 2000. In the same way, shareholder payouts scale up broadly only in this post-2000 period, rather than rising steadily from the 1980s onward. Over this period, the conditional correlation between payouts and negative investment attenuates. The evidence thus departs sharply from strong versions of DD theory, which cannot readily account for this structural break. Instead, a trifecta of other factors—market power, global integration, and new-economy technologies—better explains why high profits have not translated into robust reinvestment. These findings challenge the analytical primacy given to financialisation in critical political economy and highlight the need to foreground the changing structure of corporate power in understanding contemporary growth and distribution dynamics.