Financialization and sluggish recovery of firms' investment: Global evidence from the 2007–2008 financial crisis

Abstract

AbstractAfter the financial crisis of 2007–2008, the global economy witnessed a trend of sluggish investment recovery and continuous deepening of financialization. Using data on nonfinancial firms from 108 countries over the period from 2000 to 2017, we examine the impact of financialization on firms' postcrisis investment recovery with a probit model. We find that firms' financialization inhibited postcrisis investment recovery, and this finding remains stable under a series of robustness checks. Further discussion shows the hindering impact of financialization on investment recovery is especially dominant among firms with severe financial constraints and firms from advanced economies. Higher financial market yield also exacerbates the restraint effect of financialization on investment recovery.