Financialization and Investment: A Survey of the Empirical Literature

Abstract An expanding literature analyses the implications of the post‐1980 expansion of finance in advanced economies – a process summarized as ‘financialization’ – for capital accumulation. This paper surveys the empirical literature on financialization and investment to take stock of where we are and to identify questions for further research. Because ‘financialization’ is widely recognized to be ambiguously defined, I first introduce empirical indicators of financialization in this literature. This categorization elucidates three approaches to measuring financialization in the context of investment. The first two approaches emphasize rising income flows between nonfinancial corporations (NFCs) and finance: first, growth in NFCs’ financial incomes and, second, growth in NFCs’ payments to creditors and shareholders. Rising financial profits are, notably, widely used to suggest financial assets and incomes ‘crowd out’ physical investment. I contend that these flow‐based indicators of financialization capture important relationships between changes in firm financial behaviour and investment, but also raise questions about determinants underlying NFCs’ changing portfolio and financing decisions. The third approach to defining financialization emphasizes the best‐developed behavioural explanation linking financialization to reduced investment: shareholder value orientation. In future research, scope remains for further attention to behavioural drivers of the empirical trends summarizing financialization.