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Title: Financialisation and real investment in the European Union: beneficial or prejudicial effects?
Authors: Barradas, R.
Keywords: Financialisation
European Union
Panel data
Least squares dummy variable bias corrected estimator
Issue Date: 2017
Publisher: Routledge/Taylor and Francis
Abstract: This article presents an empirical analysis of the relationship between financialisation and real investment for non-financial corporations using panel data composed of 27 European Union countries over 19 years (1995 to 2013). On the one hand, financialisation leads to a rise in financial investments, diverting funds from real investments (‘crowding out’ effect); on the other, pressures from shareholders to intensify financial payments restrict the funds available for new real investments. We estimate an aggregate investment equation with the traditional variables (lagged investment, profitability, debt, cost of capital, corporate savings and output growth) and two further measures of financialisation (financial receipts and financial payments). The findings demonstrate that financialisation has damaged real investment in European Union countries, mainly through the channel of financial payments, either by interest or dividend payments. It is also found that the prejudicial effects of financialisation on investment were more severe in the pre-2007 crisis period. It is concluded that financialisation contributed to a slowdown of real investment by 1 to 8 per cent in the full and pre-crisis period, respectively. During the pre-crisis period, financialisation was the main driver of the slowdown of investment in the European Union.
Peer reviewed: yes
DOI: 10.1080/09538259.2017.1348574
ISSN: 0953-8259
Accession number: WOS:000419365300003
Appears in Collections:DINÂMIA'CET-RI - Artigo em revista científica internacional com arbitragem científica

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