The effects of financialization on investment in Europe

This thesis provides new evidence about the effects of financialization on non-financial firms’ investment in Western European countries. First, we start by clarifying the nature of ‘rent’ in advanced capitalist economies, thus reviewing the key contributions within the history of economic thoughts about the relationships between different forms of ‘unearned incomes’ and the dynamic of accumulation in non-financial businesses. We thus provide a description of the new ‘financial rent’ that emerged in financialized economies since the 1980s. Second, we review the literature about firms’ physical investment, highlighting the general lack of the inclusion of financial variables as key determinants. Third, using data from the Worldscope database about non-financial corporations’ balance sheets for the period 1995-2015 we find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets. This finding is robust for both the pool of all Western European firms and selected single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies’ size; financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only smaller, relatively more credit-constrained companies. Moreover, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies’ investment. When financial variables are integrated in the estimation of companies’ investment behaviour, the impact of the increasing role of finance within investment decisions is overall negative. These findings challenge the common wisdom on ‘finance-growth nexus’, and especially the findings of the ‘conventional’ empirical literature about firms’ investment. Our findings support the ‘financialization thesis’ that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term concerns for productivity.

Name dc:type.qualificationname

phd

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

University of Greenwich

Year dc:date.issued

2016

Author dc:creator

• Tori, Daniele

Advisors dc:contributor.advisor

• Onaran, Özlem
• Ugur, Mehmet
• Powell, Jeff

• HG Finance

Language dc:language

en