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Financialization and the nonfinancial corporation: an investigation of firmlevel investment behavior in the U.S., 1971-2011

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  • Leila E. Davis

    (University of Massachusetts Amherst)

Abstract

Changes in the portfolio and financing behavior of nonfinancial corporations (NFCs) over the post- 1970 period point to the financialization of the nonfinancial corporation and raise the question of accompanying changes in fixed investment behavior. Using a firm-level panel, this paper econometrically investigates the relationship between financialization and investment, exploring the implications of changes in financing behavior, increasingly entrenched shareholder value norms, and rising firm-level demand volatility for investment by NFCs in the U.S. between 1971 and 2011. Shareholder value norms and firm-level volatility are, in particular, identified as characteristics of the post-1970 U.S. economy that are associated with a significant decline in NFC investment rates. The analysis also highlights key differences by firm size. In particular, shareholder value norms are found to primarily influence the investment behavior of large NFCs, while rising volatility most substantially impacts small firms.

Suggested Citation

  • Leila E. Davis, 2013. "Financialization and the nonfinancial corporation: an investigation of firmlevel investment behavior in the U.S., 1971-2011," UMASS Amherst Economics Working Papers 2013-08, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2013-08
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    Cited by:

    1. Dünhaupt, Petra, 2016. "Financialization and the crises of capitalism," IPE Working Papers 67/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Kohler, Karsten & Guschanski, Alexander & Stockhammer, Engelbert, 2018. "Verteilungseffekte von Finanzialisierung," Greenwich Papers in Political Economy 23471, University of Greenwich, Greenwich Political Economy Research Centre.
    3. Dögüs, Ilhan, 2016. "A Minskyan criticism on the shareholder pressure approach of financialisation," ZÖSS-Discussion Papers 53, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    4. Juan A. Montecino & Gerald Epstein, 2014. "Intra-Financial Lending, Credit, and Capital Formation," Working Papers Series 21, Institute for New Economic Thinking.
    5. Shimano, Norihito, 2017. "The effect of pro-shareholder income distribution on capital accumulation: evidence from Japanese non-financial firms," MPRA Paper 76830, University Library of Munich, Germany.
    6. Hein, Eckhard, 2017. "Financialisation and tendencies towards stagnation: The role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9," IPE Working Papers 90/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    7. Gerald Epstein, 2018. "On the Social Efficiency of Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 330-352, March.
    8. Ryszard Kata & Justyna Chmiel, 2020. "Financialisation Level of Non-Financial Enterprises in European Union Countries: A Comparative Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 378-398.
    9. Sebastiano Cupertino & Costanza Consolandi & Alessandro Vercelli, 2019. "Corporate Social Performance, Financialization, and Real Investment in US Manufacturing Firms," Sustainability, MDPI, vol. 11(7), pages 1-15, March.
    10. Köhler, Karsten, 2016. "Currency devaluations, aggregate demand, and debt dynamics in an economy with foreign currency liabilities," IPE Working Papers 78/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    11. Agne Setikiene & Mindaugas Butkus, 2021. "The Heterogeneous Impact of Financialisation on Economic Growth in the Long Run," JRFM, MDPI, vol. 14(5), pages 1-30, May.
    12. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "A Multi-Sectoral Approach to Financialisation," Department of Economics University of Siena 794, Department of Economics, University of Siena.

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