Identifying the “financialization” of the nonfinancial corporation in the U.S. economy: A decomposition of firm-level balance sheets

Davis, Leila E.

doi:10.1080/01603477.2015.1116370

Cited by 86 publications

(94 citation statements)

References 25 publications

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“…Although not fully comparable, our results confirm previous findings at the microeconomic level for the USA (Orhangazi, 2008b;Davis, 2016), as well as at the macroeconomic level for the USA and European countries (see in particular Stockhammer, 2004;van Treeck, 2008).…”

Section: The Comparison Of the Economic Effects Of Sales And Operatinsupporting

confidence: 72%

“…Finally, the recent paper by Davis (2016) looks at financialization of NFCs in the US using a descriptive analysis of the changes in their balance-sheet structures. The author finds a) a substantial increase of the financial assets/fixed assets ratio since the 1980s; b) an overall increase in NFCs' leverage; c) an increasing role of equity, and especially in the form of share buybacks.…”

Section: Accumulation Of Fixed Assets Liquidity and Financialisationmentioning

confidence: 99%

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The Effects of Financialisation and Financial Development on Investment: Evidence from Firm-Level Data in Europe

Tori

Onaran²

2017

SSRN Journal

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In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies' size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Moreover, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies' investment. This finding challenges the common wisdom on 'finance-growth nexus'. Our findings support the 'financialization thesis' that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity. Year: 2017No: GPERC 44 GREENWICH POLITICAL ECONOMY RESEARCH CENTRE (GPERC)2

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Section: The Comparison Of the Economic Effects Of Sales And Operatinsupporting

confidence: 72%

Section: Accumulation Of Fixed Assets Liquidity and Financialisationmentioning

confidence: 99%

The Effects of Financialisation and Financial Development on Investment: Evidence from Firm-Level Data in Europe

Tori

Onaran²

2017

SSRN Journal

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“…Fixed Capital and Financial Assets Relative to Sales (Yearly Median Across Nonfinancial Corporations). Source : Compustat, author's calculations (reproduced from Davis, ). Notes : The two series plot the across‐firm yearly median of financial assets and fixed capital, each relative to firm‐level sales between 1950 and 2014.…”

Section: Firm Financial Behaviour and Investmentmentioning

confidence: 99%

“…Striking shifts in the balance sheet structure of nonfinancial corporations (NFCs) point to the financialization of traditionally nonfinancial firms, and suggest links between various aspects of financialization and investment. These trends are most fully documented for the USA (see Davis, ), where a shift in portfolio composition towards financial assets (Crotty, ) is, for instance, often used to suggest that financial investments increasingly replace – or ‘crowd out’ – fixed investment. Concurrently, firm balance sheets reflect changes in the structure of external finance, including growth in both indebtedness and own‐stock repurchases, particularly among large firms (Davis, ).…”

Section: Introductionmentioning

confidence: 99%

“…These trends are most fully documented for the USA (see Davis, ), where a shift in portfolio composition towards financial assets (Crotty, ) is, for instance, often used to suggest that financial investments increasingly replace – or ‘crowd out’ – fixed investment. Concurrently, firm balance sheets reflect changes in the structure of external finance, including growth in both indebtedness and own‐stock repurchases, particularly among large firms (Davis, ). There is, correspondingly, an expansion in financial profits earned by nonfinancial firms (Krippner, ), and also in payments by NFCs to financial markets (Orhangazi, ).…”

Section: Introductionmentioning

confidence: 99%

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Financialization and Investment: A Survey of the Empirical Literature

Davis

2017

Journal of Economic Surveys

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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.

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Financialization and Investment: A Survey of the Empirical Literature

Davis

2018

Analytical Political Economy

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Identifying the “financialization” of the nonfinancial corporation in the U.S. economy: A decomposition of firm-level balance sheets

Cited by 86 publications

References 25 publications

The Effects of Financialisation and Financial Development on Investment: Evidence from Firm-Level Data in Europe

The Effects of Financialisation and Financial Development on Investment: Evidence from Firm-Level Data in Europe

Financialization and Investment: A Survey of the Empirical Literature

Financialization and Investment: A Survey of the Empirical Literature

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