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Financialization and the nonfinancial corporation: an investigation of firmlevel investment behavior in the U.S., 1971-2011

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  • Leila E. Davis

    () (University of Massachusetts Amherst)

Abstract

Changes in the portfolio and financing behavior of nonfinancial corporations (NFCs) over the post- 1970 period point to the financialization of the nonfinancial corporation and raise the question of accompanying changes in fixed investment behavior. Using a firm-level panel, this paper econometrically investigates the relationship between financialization and investment, exploring the implications of changes in financing behavior, increasingly entrenched shareholder value norms, and rising firm-level demand volatility for investment by NFCs in the U.S. between 1971 and 2011. Shareholder value norms and firm-level volatility are, in particular, identified as characteristics of the post-1970 U.S. economy that are associated with a significant decline in NFC investment rates. The analysis also highlights key differences by firm size. In particular, shareholder value norms are found to primarily influence the investment behavior of large NFCs, while rising volatility most substantially impacts small firms.

Suggested Citation

  • 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.
  • Handle: RePEc:ums:papers:2013-08
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    References listed on IDEAS

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    1. Peter Skott & Frederick Guy, 2013. "Power, Luck and Ideology in a Model of Executive Pay," UMASS Amherst Economics Working Papers 2013-01, University of Massachusetts Amherst, Department of Economics.
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    5. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Working Papers wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. 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, pages 3-39.
    7. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
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    Cited by:

    1. Dünhaupt, Petra, 2016. "Financialization and the crises of capitalism," IPE Working Papers 67/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Dögüs, Ilhan, 2016. "A Minskyan criticism on the shareholder pressure approach of financialisation," Discussion Papers 53, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    3. Juan A. Montecino & Gerald Epstein, 2014. "Intra-Financial Lending, Credit, and Capital Formation," Working Papers Series 21, Institute for New Economic Thinking.
    4. Köhler, Karsten, 2016. "Currency devaluations, aggregate demand, and debt dynamics in an economy with foreign currency liabilities," IPE Working Papers 78/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. Shimano, Norihito, 2017. "The effect of pro-shareholder income distribution on capital accumulation: evidence from Japanese non-financial firms," MPRA Paper 76830, University Library of Munich, Germany.
    6. Hein, Eckhard, 2017. "Financialisation and tendencies towards stagnation: The role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9," IPE Working Papers 90/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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