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Distortions in the investment system driven by financial markets

Author

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  • Bélyácz, Iván
  • Daubner, Katalin

Abstract

Over the past few decades, the financial sector in advanced economies has undergone profound changes, and this is particularly true for the US financial economy. This paper focuses on aspects of this evolution that are closely related to distortions in the investment system. The line of thought starts from the maximisation of shareholder value, which was the ideological basis for the split between the real economy and the financial sector. The paper provides a multifaceted analysis of the impact of financial markets on investment behaviour, the decline in real capital investment, the adverse consequences of value extraction, and the adverse effects of share buybacks. As long as the gap between the cost of capital and the minimum expected rate of return is not narrowed, the position of real capital investment will not improve.

Suggested Citation

  • Bélyácz, Iván & Daubner, Katalin, 2024. "Distortions in the investment system driven by financial markets," Public Finance Quarterly, Corvinus University of Budapest, vol. 70(2), pages 9-29.
    • Handle: RePEc:pfq:journl:v:70:y:2024:i:2:p:9-29
    DOI: https://doi.org/10.35551/PFQ_2024_2_1
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    More about this item

    Keywords

    investment; financial markets; shareholder value maximisation; investment behavior;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General

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