Corporate Financialization: A Conceptual Clarification and Critical Review of the Literature

By Joel Rabinovich, Niall Reddy

PKES Working Paper 2402

February 2024

Corporate financialization (CF) comprises a major subfield of financialization studies centered on the belief that significant changes in corporate governance and business models have been driven by financial imperatives, profoundly impacting investment habits, labor policies, organizational practices, and the distribution of revenues. Experiencing explosive growth in recent years, the field has become mired in conceptual ambiguity, mirroring problems with financialization studies as a whole. While seeking to restore some conceptual clarity and clearly delineate the boundaries of the concept, this paper attempts a comprehensive review of empirical work on CF. At the core of the field we identify four sub-fields, each addressing distinct aspects of the way business models have become financialized under the influence of shareholder value principles. Our dissection of the literature shows, however, that these theories mostly remain under substantiated. The connection of financialization strategies to key outcomes of interest, like declining investment and rising inequality, remains nebulous in most cases. Beyond this, we identify key weaknesses in the way shareholder value orientation - the causal lynch pin of CF accounts - has been theorized. The field as a whole has paid insufficient attention to the variegated and uneven nature of the shareholder revolution, which has prevented a single uniform set of governance principles from diffusing. The critique concludes with a call for caution and nuance in employing the corporate financialization framework, emphasizing its role as just one part of a multifaceted transformation within capitalism. Alongside it, other pivotal structural forces, such as intangibilization, monopolization, and globalization, demand equal attention. The overarching aim of this review is to urge greater clarity, conceptual discipline, and a holistic perspective in future investigations into the dynamics of financialized capitalism.

Keywords: financialization, corporate governance, firm strategy, short-termism

JEL classification: L20