Financialisation and Accumulation: A Firm-level Study in the Indian Context

Abstract

This paper attempts a firm-level study of financialisation in the Indian context. In the last few decades, many studies have shown that financialisation or the increased dominance of the financial sector tends to have a profound and mostly negative impact of real sector growth and accumulation. The consequent declining real investment and accumulation is likely to affect future growth adversely along with employment and income levels. This study attempts a firm level look at financialisation and real capital accumulation, using data on companies constituting the SENSEX.We use the Least squares dummy variable model (LSDV) model for the short panel data to analyses if the impact of financialisation as estimated by dividend payouts and rentier shares on real capital accumulation is significant. The paper contributes to the existing literature in two ways: first, by introducing a microeconomic perspective on financialisation especially in the context of firms who are likely to be affected by financialisation and secondly, by introducing both dividend payouts along with rentier shares as independent variables representing financialisation.The paper finds a negative impact of financialisation as reflected in higher dividend payouts and increasing rentier shares on real capital accumulation, suggesting there is a likely tradeoff between shareholder orientation and real capital accumulation. This implies that increasing rentier shares and dividend payouts affect negatively real capital accumulation which may lead to future growth being compromised. It is pertinent for firms to have a balance between shareholder value and long-run growth of the firm for which real capital accumulation will be important.