Financialisation and Physical Investment: A global race to the bottom in accumulation?

Abstract

This article estimates the effects of financialisation on physical investment using panel data based on balance-sheets of non-financial publicly listed companies for the period of 1995-2015 in both developed and developing countries. The last three decades have witnessed the development of a phenomenon now central in the evolution of capitalist economies: the 'financialisation' of the economy. We can summarize financialisation as an ongoing and self-reinforcing economic and social process that manifests itself in the growing prominence and influence of behaviours derived from the financial sector (Epstein, 2005). Following van der Zwan (2014), we can highlight three main features of this process: A new regime of accumulation largely shaped around financial motives. The consolidation of the 'shareholder value' as the key principle in corporate governance. The dissemination of practices linked to finance within everyday life (pension schemes, mortgages provision, healthcare etc.). This article aims at contributing to the understanding of the impact of the first two points on investment. Among the developed economies, we focus on the cases of the USA, Japan, and a group of Western European countries. In the developing world, we present estimations based on the group of the NFCs in all developing countries as well as BRICS as a group- and country specific estimations for South Africa, South Korea, India, and China, for which there are data for a sufficiently large group of companies. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets. 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. Our analysis contributes to the literature by providing evidence on the multifaceted relationship between financialization and corporate investment in developing and emerging countries.