ABSTRACT
The post-1980 era has been characterized by weak global aggregate demand growth and intensified competition in key product markets, which led to low profits and chronic excess capacity. At the same time, financial markets greatly expanded and put increased pressure on nonfinancial corporations (NFCs) to generate higher earnings and distribute them to the financial markets.1 Unable to increase their profits due to adverse conditions in the product markets, NFCs were forced to pay an increasing share of their internal funds to financial markets. They responded to this paradox with a change in their corporate strategies and long-term growth orientation left its place to short-term survivalist strategies that prioritized increasing returns to shareholders. The establishment of a market for corporate control with its hostile takeover waves, the rise of the “shareholder value movement,” and changes in managerial incentive structures shortened the NFC planning horizons and led the NFC management to change their priorities and increase dividend payments and/or buyback firm’s own stocks in an attempt to meet financial market demands. This was accompanied by an increase in NFCs’ investments in financial assets and subsidiaries. In a process now commonly referred to as financialization, the relationship between financial markets and the NFCs was fundamentally transformed.2
