Shareholder value orientation, corporate cash piles, and the myth of financial accumulation

Abstract

Financialization scholars argue that the growing financial balance sheets of non-financial corporations indicate a “financial turn in accumulation” driven by the rise of shareholder value orientation (SVO). In this paper, I test whether greater shareholder influence or shareholder-aligning managerial incentives can explain the more rapid accumulation of financial assets among US NFCs. I find that shareholder power is associated with some increase in short-term financial assets but only in the case of certain shareholder types, in particular high turnover institutional investors. The magnitudes of the effect are small however, and only pertain to smaller firms. Moreover, ownership concentration by these impatient investor types is declining. The results suggest that changing corporate governance patterns have little capacity to explain balance sheet financialization. I argue that mainstream accounts focused on the precautionary savings of new, research-intensive firms and tax arbitrage amongst multinationals offer a better explanation for growing financial balances than the financial accumulation hypothesis. Neither of these imply a substitution of financial for real investment, which calls into question an important mechanism thought to connect financialization to secular stagnation and rising inequality.