Corporate Social Performance, Financialization, and Real Investment in US Manufacturing Firms

Sebastiano Cupertino,Alessandro Vercelli,Costanza Consolandi

doi:10.3390/su11071836

Sebastiano Cupertino, Alessandro Vercelli + Show 1 more

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https://doi.org/10.3390/su11071836

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Journal: Sustainability	Publication Date: Mar 27, 2019
Citations: 37	License type: CC BY 4.0

Affiliation: University of Siena

Abstract

In recent years, the global financial and economic crisis are rewriting the relationship between business and society, focusing, among other things, on the role of the process of financialization, not only in the economy as a whole but also within non-financial companies. Shareholder value maximization, together with the commoditization of business, has led to a general short-term approach at the expense of capital accumulation and core business activity, to the detriment of not only firms’ competitiveness and productivity but also of human capital, strategic innovation, business ethics, and long-term growth. Within this framework, this study investigates the role of corporate sustainability, analyzing the nexus between financialization, accumulation of real capital, and corporate social performance, an issue that has been neglected so far. Using a sample of US manufacturing firms from 2002 to 2017, we found that, while financialization was negatively correlated with corporate real investment, the environmental and social firm performance positively impacted corporate capital accumulation. Our results support the belief that a focus on environmental, social, and governance standards, fostering real investments, may enhance a firm’s long-term growth with a positive effect on its long-term value.

Highlights

In recent decades, an extensive body of literature found a negative correlation between financialization and the accumulation of real capital from both a macroeconomic and firm-level perspective
Three out of the four proxies of corporate financialization—i.e., financial payments scaled by total assets (FPTA), share buybacks on total assets (BuybacksTA), and investment in financial assets on total assets (FATA)—present negative and significant coefficients
The generalized method of moments (GMM) regressions performed using Equation (2) and its variations (2a, 2b, 2c) allow us to argue that ESG factors positively affected corporate real investment despite the negative effects of financialization on real capital accumulation

Summary

Introduction

An extensive body of literature found a negative correlation between financialization and the accumulation of real capital from both a macroeconomic and firm-level perspective. The growth of corporate investment in financial assets often aims to compensate the fall in profits earned in the real sector in the short term, producing a vicious circle in the long-term, as the ensuing fall of real investment is bound to further reduce the profits from them and increase the share of profits from financial activity This process is one of the results of the adoption of the maximization of shareholders’ value as the exclusive goal of the firm since the late 1970s. A growing number of firms started to reconsider CSR principles, shifting corporate behavior towards a more sustainable strategy supported by a managerial commitment focused on long-term value creation [10,11] To this end, managers need to boost long-term real investment [5,12]

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