Industrial stagnation and the financialization of nonfinancial corporations

Leila Davis () and Shane McCormack ()
Additional contact information
Leila Davis: University of Massachusetts Boston
Shane McCormack: University of Massachusetts Boston

Review of Evolutionary Political Economy, 2021, vol. 2, issue 3, 459-491

Abstract: Abstract In this paper, we analyze the relationship between industrial stagnation in the US economy and the financialization of nonfinancial firms by asking whether firms in industries experiencing a stronger post-1970 tendency towards stagnation allocate more funds to shareholder payouts and, specifically, share repurchases. While strands of the literature on financialization have long-emphasized the role of stagnation in driving financialization, fewer papers have considered this hypothesis empirically. Our paper speaks to this space in the literature, by linking industrial stagnation in capital accumulation to a firm’s decision to financialize. We, first, use firm-level data to construct an empirical measure of industrial stagnation. Drawing on insights from the Monopoly Capital School, we measure stagnation using the Baran ratio — which describes the average share of surplus allocated towards investment within an industry — and show a secular decline in the average Baran ratio since 1980. Second, we analyze if the tendency towards stagnation captured by the declining Baran ratio predicts the likelihood and magnitude of a firm’s shareholder payouts. We show that firms in industries with a stronger stagnation tendency (a lower Baran ratio) are more likely to repurchase stock and, among firms that do repurchase, that a lower Baran ratio predicts a higher magnitude of these shareholder payouts. These results suggest that a slowdown on the nonfinancial side of the economy is one factor underlying financialized firm behavior in the post-1980 USA.

Keywords: Financialization; Stagnation; Shareholder value (search for similar items in EconPapers)
JEL-codes: B5 E12 G3 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s43253-021-00043-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:revepe:v:2:y:2021:i:3:d:10.1007_s43253-021-00043-6

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/43253

DOI: 10.1007/s43253-021-00043-6

Access Statistics for this article

Review of Evolutionary Political Economy is currently edited by Wolfram Elsner

More articles in Review of Evolutionary Political Economy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().