Financialization and Investment: A Survey of the Empirical Literature

Abstract

An expanding literature analyses the implications of the post‐1980 expansion of finance in advanced economies – a process summarized as ‘financialization’ – for capital accumulation. This paper surveys the empirical literature on financialization and investment to take stock of where we are and to identify questions for further research. Because ‘financialization’ is widely recognized to be ambiguously defined, I first introduce empirical indicators of financialization in this literature. This categorization elucidates three approaches to measuring financialization in the context of investment. The first two approaches emphasize rising income flows between nonfinancial corporations (NFCs) and finance: first, growth in NFCs’ financial incomes and, second, growth in NFCs’ payments to creditors and shareholders. Rising financial profits are, notably, widely used to suggest financial assets and incomes ‘crowd out’ physical investment. I contend that these flow‐based indicators of financialization capture important relationships between changes in firm financial behaviour and investment, but also raise questions about determinants underlying NFCs’ changing portfolio and financing decisions. The third approach to defining financialization emphasizes the best‐developed behavioural explanation linking financialization to reduced investment: shareholder value orientation. In future research, scope remains for further attention to behavioural drivers of the empirical trends summarizing financialization.

La importancia del sector de actividad en la financiarización de las empresas. Un análisis multinivel de empresas británicas y españolas

“…One of the main reasons for that is the lack of consensus on how the process of financialisation has changed the behaviour of NFCs (Barradas, 2016(Barradas, , 2017; Barradas and Lagoa, 2017). Acknowledging the need for a clearer definition of financialisation at firm level has been the starting point of relevant albeit insufficient advances made in recent years to measure the financial orientation of productive firms (Crotty, 2005;Orhangazi, 2008;Baud and Durand, 2012;Davis, 2016Davis, , 2017Davis, , 2018Stockhammer, 2005;Soener, 2015).…”

“…The concept of financialisation is widely used to describe certain structural changes in advanced economies. The process of financialisation is associated not only with an expansion of the financial system, but also with a change in the behaviour of non-financial actors, the source of their monetary earnings and the structure of their balance sheets (Davis, 2017(Davis, , 2018.…”

“…First, the rise in the share of financial assets relative to fixed capital; second, the increase in liabilities; and third the growth of financial income. However, those facts are not exclusive to financialised behaviour and most contributions reflect significant variability in their interpretation (Lin and Tomaskovic-Devey, 2013;Tomaskovic-Devey and Lin, 2011;Davis, 2016Davis, , 2017. This paper focuses on the discussion of the third stylized fact regarding income origin.…”

“…Under these conditions, the precisionweighted estimates of a multilevel model allow for the calculation of sectoral financialisation ratios that are more robust to the presence of these data problems. We examine and discuss these methodological issues that are not exclusive of our paper, but they are present in most of the literature on financialisation (Lin and Tomaskovic-Devey, 2013;Tomaskovic-Devey and Lin, 2011;Davis, 2016Davis, , 2017.…”

Finansyzacja polskich spółek giełdowych w ujęciu sektorowym

“…This situation may reflect the ongoing reorientation of shareholders, in which non-financial enterprises increasingly focus on financial activity ratios at the expense of the company's growth and investment activities [Tori, Onaran, 2018, pp. 1-24;Davis, 2017aDavis, , pp. 1333Davis, -1334Davis, 2017b, pp.…”