Financialization and the non‐financial corporation: An investigation of firm‐level investment behavior in the United States

Changes in the portfolio and financing behavior of non‐financial corporations (NFCs) over the post‐1970 period in the U.S. economy point to the financialization of the NFC and raise the question of accompanying changes in fixed investment behavior. Using a firm‐level panel, this article econometrically investigates the relationship between financialization and investment, exploring the implications of changes in financing behavior, increasingly entrenched shareholder value norms and rising firm‐level demand volatility for NFC investment in the U.S. economy between 1971 and 2013. Shareholder value orientation is, in particular, identified as a characteristic of the post‐1970 U.S. economy associated with a statistically and economically significant decline in NFC investment rates. The stock of financial assets, conversely, is found to be a positive correlate of firm investment. The analysis also highlights key differences by firm size. In particular, shareholder value norms are found to primarily influence the investment behavior of large NFCs, while rising volatility most substantially impacts small firms.