Redirecting Firm Spending: How Financialization and Shareholder Value Orientation Contribute to Intangible Asset Investment

• In Event: Economic Sociology Section Roundtables
  In Refereed Roundtable (60 minute): Roundtable 5: Financialization, Wealth, and Inequality

Abstract

This paper tackles a genuinely surprising puzzle at the intersection of three of the biggest stories in contemporary capitalism: financialization, the shareholder value revolution, and the rise of intangible assets (think patents, AI, software, brands).

The received wisdom in economic sociology is that financialized firms and those laser-focused on shareholder returns underinvest. They crowd out productive investment by hoarding financial assets or shoveling cash into stock buybacks and dividends. We accept this for tangible assets (factories, machinery) but ask: does the same logic hold for intangibles?

The answer is a sharp no, and the twist is theoretically useful. Using Compustat data on U.S. non-financial firms from 2000 to 2024, we find that both financial income accumulation and shareholder payouts are associated with higher intangible investment. Financialized and shareholder-oriented firms are not strictly hollowing themselves out; they are channeling resources into patents, automation, AI processes, and acquisitions.

The mechanism we propose is critical: intangibles are uniquely attractive to financially-oriented firms precisely because they can generate monopoly rents and pricing power without long-term commitments to workers or production. A machine needs workers, a patent does not. We test whether rising labor intensity intervenes in these relationships, finding that controlling for it reduces but does not eliminate the financialization and shareholder value effects, suggesting these firm strategies drive intangible investment both through and independently of labor cost pressures.

The punchline for inequality is that three phenomena previously treated as parallel but separate drivers of rising inequality, namely financialization, shareholder primacy, and intangible-intensive capitalism, may in fact be mutually reinforcing, forming a self-perpetuating system that concentrates income upward while eroding worker bargaining power from multiple directions simultaneously.

Authors

• Alicia Eads, University of Toronto

• L. Larry Liu, Morgan State University