Financialization, financial development and investment. Evidence from European non-financial corporations

Abstract

This article provides estimations of the effects of different financial channels on physical investment in Europe using the balance sheets of publicly listed non-financial corporations (NFCs) for the period 1995–2015. The evidence suggests that both financial payments and financial income have an adverse effect on investment in fixed assets. The negative impacts of increasing financial income are non-linear with respect to company size: they crowd out investment in large companies, and have a positive effect on the investment of relatively smaller companies. Similar to the recent literature on finance-growth nexus, we find an inverted U-shaped relationship between financial development and companies’ investment. However, in contrast to the existing literature, we also find that a higher degree of financial development in the country is associated with a stronger negative effect of financial income on investment.

The Rise of Corporate Net Lending among G7 Countries: A Firm-Level Analysis

“…Overall, the alignment of interests between managers and shareholders pushes the former to nurture and maintain high the level of financial payments. The negative link between financialisation and investment is corroborated by numerous studies that explore the relationship between the rise of financialisation and capital expenditure ( Stockhammer, 2004;Orhangazi, 2008bOrhangazi, , 2008aTori and Onaran, 2017, 2018b, 2018aDavis, 2018).…”

“…The rationale behind this hypothesis is that the modification brought by the process of financialisation of the functioning of contemporary firms, in particular with respect to the increased desire to increase financial payouts (Froud et al, 2006;Lazonick, 2015) together with the lower level of investment (e.g. Stockhammer, 2004;Tori & Onaran, 2018a), contributed to increase the gap between savings and investment resulting in the rise of net lending.…”

Cash Holdings and the Financialisation of Latin American Nonfinancial Corporations

“…Paradoxically, the quest for financial profits linked to the increased acquisition of financial assets, or what Rabinovich (2019) defines as the financial turn of accumulation hypothesis, has been tested only indirectly (with the exception of Davis, 2018) and somewhat disconnected from the corporate finance literature on cash holdings. We say indirectly because most empirical studies focus on the effect of financial income on physical investment (capital expenditures) rather than financial investments (see, for example, Orhangazi, 2008;Stockhammer, 2004;Tori & Onaran, 2018b, 2018a. Negative and significant values of the estimated parameters are thus interpreted as a proof of the turn to financial accumulation that crowds-out productive accumulation (Hecht, 2014;Orhangazi, 2008;Stockhammer, 2004).…”

La financiarización de las grandes empresas farmacéuticas

“…Nevertheless, rising shares of liquid-though not necessarily financial assets-have been generally documented. At the same time, fixed capital shares have often fallen (Tori and Onaran 2018b;Stockhammer 2004) although the causal relationship is still contested and might not be universally valid (Kliman and Williams 2015).…”