FINANCIALIZATION AND INVESTMENT: A SURVEY OF THE EMPIRICAL LITERATURE
Journal of Economic Surveys, 2017, vol. 31, issue 5, 1332-1358
An expanding literature analyses the implications of the postâ€ 1980 expansion of finance in advanced economies â€“ a process summarized as â€˜financializationâ€™ â€“ 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 â€˜financializationâ€™ 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 NFCsâ€™ financial incomes and, second, growth in NFCsâ€™ payments to creditors and shareholders. Rising financial profits are, notably, widely used to suggest financial assets and incomes â€˜crowd outâ€™ physical investment. I contend that these flowâ€ based indicators of financialization capture important relationships between changes in firm financial behaviour and investment, but also raise questions about determinants underlying NFCsâ€™ changing portfolio and financing decisions. The third approach to defining financialization emphasizes the bestâ€ 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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