Financial derivatives, liquidity preference, competition and financial inflation

Corporate financialization in South Africa: From investment strike to housing bubble

“…This tendency is so distinct that resources generated through issued bonds never exceeded more than 20% of total investment expenditure since the 1970s, while new equity rose up to 120% of total investment spending, going well beyond financing needs for productive investment. This is in line with Toporowski’s (2000) concept of overcapitalization. Overcapitalized NFCs use capital markets during boom time to obtain ‘cheap’ funds since listed companies are not obliged to repurchase equity and capital gains on shares are materialized in secondary markets.…”

“…It has been argued that financialized NFCs increasingly shift their productive operations and investment, which is long term by nature, to short-term financial activity (Crotty, 2005; Krippner, 2005; Orhangazi, 2008). At the same time, they are also ever more affected by financial markets which limit their ability to reinvest profits (Stockhammer, 2004) and expose NFCs to rising financial volatility (Toporowski, 2000). In South Africa, the activity of large company groups – the so-called mining-finance houses that historically focused on resource extraction and banking – has been seen as major driver of financialization.…”

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

“…The standardisation of policies across the globe that is promoted through ICPF investment is seen as a negative and politicised strategy that only contributes to reinforcing the neoliberal agenda (Soederberg, 2003). With regard to the stability of international capital flows, this literature, in line with the general argument above, points to the risk of exacerbated price movements and boom–bust cycles due to the presence of herding, benchmark following, positive feedback trading, and contagion (Arslanalp and Tsuda, 2015; Langley, 2004; Liang, 2011; Toporowski, 2000).…”

“…The rise of ICPFs as shareholders and key economic agents represents a crucial structural shift in Western capitalism (variously termed ‘grey’/pension fund/money manager capitalism) (Blackburn, 1999; Clark, 2000; Toporowski, 2000; Whalen, 2001). For some, this shift represents a beneficial development as ICPFs compensate for the falling financial capacity of nation states in the face of changing demographics and promote efficient corporate governance (Clark, 2000, 2001, 2003; Clark and Hebb, 2005).…”

“…Others have been more sceptical of the alleged benefits of ICPFs which are seen to promote speculative behaviour and herding which destabilise the financial system and generate boom–bust cycles (Engelen, 2003; Langley, 2004; Toporowski, 2000). Moreover, ICPFs are thought to advance ‘shareholder value’, which prioritises short-term returns at the expense of long-run productive investment and employment (Blackburn, 1999; Engelen, 2003; Langley, 2008; Minns, 1996; Toporowski, 2000; Whalen, 2001). When it comes to investing in EMs, ICPFs are seen to impose constraints, particularly through their holding of EM public debts, ‘with knock-on effects for national exchange rate and interest rate policies’ (Minns, 1996: 48).…”