UC Riverside

In this dissertation, I model several factors pushing and/or pulling nonfinancial industries into finance, with error correction models, using a pooled dataset of American industries from 1970 to 2008. Providing the first exhaustive account of theorized historical drivers of financialization, I include measures of globalization, industry concentration, an index of shareholder value, and real interest rates. I examine the impacts of financial deregulations and financial innovations by introducing novel indices of each concept. Import penetration should increasingly push firm operations out of their core industries and into finance as should reductions in industry concentration. The adoption of strategies used to maximize shareholder value (MSV) should also increasingly push firm operations out of their core industries and into finance. Interest rates, financial deregulations, and financial innovations should increase opportunities for profits that will increasingly pull the operations of firms into finance. My results support my interventions that import penetration increases financialization. I find some support for the hypothesis that firm behaviors consistent with the MSV increase financialization. Financial deregulations increase financialization. Real interest rates reduce financialization over the long-run while increasing financialization in the short-run. Surprisingly financial innovations decrease financialization. In Chapter 2, I provide the first analysis of the economic consequences of financialization for nonfinancial corporations (NFC)s. I argue that NFCs in industries with greater ratios of financial assets should have lower levels of pretax income after paying transactional fees, interest, dividends, and participating in share buybacks. Second I argue that unions exacerbate the growth reducing effects of financialization by keeping labor costs high and reducing flexibility to cut expenses needed to offset losses from financialization. Financialization of NFCs in industries with strong labor unions should be more harmful for economic performance since union representatives may be able to fend off cuts to labor expenses motivated by losses incurred by financialization. I use error correction models to examine firms from 1985 to 2008. My findings indicate that the effect of financialization is moderated by levels of union density, financialization has a negative effect at high levels of union density, and these findings are robust to alternative explanations.