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Financialisation, financial development, and investment: evidence from European non-financial corporations

Daniele Tori () and Ozlem Onaran ()

No 22196, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: This article provides estimations of the effects of different financial channels on physical investment in Europe using the balance sheets of publicly listed non-financial corporations (NFCs) for the period 1995–2015. The evidence suggests that both financial payments and financial income have an adverse effect on investment in fixed assets. The negative impacts of increasing financial income are non-linear with respect to company size: they crowd out investment in large companies, and have a positive effect on the investment of relatively smaller companies. Similar to the recent literature on finance-growth nexus, we find an inverted U-shaped relationship between financial development and companies’ investment. However, in contrast to the existing literature, we also find that a higher degree of financial development in the country is associated with a stronger negative effect of financial income on investment.

Keywords: financialisation; financial development; non-financial corporations; fixed investment; Europe (search for similar items in EconPapers)
JEL-codes: C23 D21 G31 (search for similar items in EconPapers)
Date: 2018-12-22
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-hme, nep-mac and nep-pke
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