Financialization and the US Economy

Financialization and the US Economy

New Directions in Modern Economics series

Özgür Orhangazi

Özgür Orhangazi brings together a comprehensive analysis of financialization in the US economy that encompasses the historical, theoretical, and empirical sides of the issues. He explores the origins and consequences of the dramatic rise of financial markets in the US economy and focuses on the impacts of this process of ‘financialization’ on the operations of the non-financial corporate sector.

Chapter 7: Financialization and Investment: Firm-level Analysis

Özgür Orhangazi

Subjects: economics and finance, financial economics and regulation, political economy, politics and public policy, political economy


7. Financialization and investment: firm-level analysis Analysis of aggregate time-series data provides initial support for the view that financialization has negative effects on NFC investment in real capital. In this chapter, I carry on the analysis to firm level and empirically test the impact of financialization on a large sample of nonfinancial firms for the period 1973–2003. I use different sector, industry and size specifications to examine the robustness of the findings. While most results are robust across these different specifications, I identify different effects of financialization on firms from different sectors and sizes. For example, while the negative effect of financialization through increased financial payout ratios is unambiguous across industries, and in small and large firms, the negative effect of increased financial profits is most obvious in large corporations which were arguably more involved in financial investments than small corporations. The contribution of this chapter is unique in that it makes use of a firm-level database to test these hypotheses for the first time. Earlier analyses, both Stockhammer (2004) and the previous chapter are limited to aggregate data analyses, which may have prevented the identification of cross-firm differences. Firm-level data permit the analysis of the effects and extent of financialization on firms of different sizes and in different sectors and/or industries. Just as important, firm-level data make it possible to analyse the characteristics of large firms, which are most likely...

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