Financialization – A Critical Assessment of Shape and Dynamics on the Level of Firms

• In Event: 4255 - Section on Economic Sociology Roundtables (1 hour)
  In Refereed Roundtable 60min: 3. Finance

Abstract

A growing literature is concerned with the study of the “financialization of the firm”, i.e. the increasing dominance of financial markets and financial motives in nonfinancial firms. Scholars concerned with this “rise of finance” in nonfinancial firms and its consequences often uncritically assume the existence and widespread diffusion of such a phenomenon. Yet, empirical evidence for this assumption is still scarce. In addition, with little knowledge about the antecedents of firm-level financialization, findings about the consequences of financialization may be falsely generalized across the whole nonfinancial corporate sector.
This paper critically interrogates the phenomenon of financialization, by sketching out its trajectory over the recent decades, using a large sample of manufacturing companies from the US, UK, Germany, and Japan. I find little support for universalistic claims of a broad “rise of finance”. Such a “rise” is limited to the dimension of nonfinancial companies’ payouts to financial markets, is geographically centered in the Anglo-Saxon economies, and is mainly driven by a subgroup of highly financialized companies. In this paper I furthermore identify potential antecedents of firm-level financialization, and test their effects in a panel regression. I find that companies’ supply chain organization, corporate governance policies, business risk, and the availability of investment opportunities stand out as important factors. Overall, my study casts doubt on claims about the universalistic, unidirectional dynamic of financialization. The phenomenon might instead be better understood as a temporary and reversible shift in nonfinancial companies’ financial market relations, the determinants of which require more detailed inquiry.

Author

• Philipp Alexander Thompson, Freie Universität Berlin