Equity issuance, share buy-back and growth in a Kaldor-Kalecki model

Abstract

PurposeThe aim of this article is to assess the macroeconomic consequences of some specific aspects of financialization (i.e. share buy-back) using a hybrid post-Keynesian model of growth and distribution based on Kaldorian and Kaleckian characteristics.Design/methodology/approachThe study follows a post-Keynesian approach and deals with financialization issues by implementing several numerical simulations.FindingsThe numerical simulations reveal the negative real impacts of massive share repurchases on the rate of accumulation because they immediately siphon off revenues directly intended for investment projects. Moreover, the negative effect of share buy-backs is reinforced especially when firms' investment decisions are more sensitive to a variation in retained earnings. Next, this macro-model also reproduces several well-known figures of the Kaleckian tradition and the paradox of costs.Research limitations/implicationsThe present article can be considered as a starting point for further theoretical extensions and requires empirical validation.Originality/valueThe Kaldor-Kalecki macro-model could be useful for policymakers who are interested in containing some of the negative excesses of financialization.