An empirical analysis of the influence of financialization on the innovative activity of the firms’ managers in Italy

Abstract

This paper contributes to the discussion about the impact of financialization on the innovative activity of firms. The initial hypothesis was whether financialization has negative impact on the innovative activity of a company as a consequence of investment short-termism of managers who are not motivated to invest in risky innovative initiatives with a long payback period. Assumptions are made through analyzing the relationship between financial indicators (financial expenses and incomes) and investments in research and development on the sample of Italian publicly listed non-financial corporations. The article tests whether financialization leads to short-termism of company managers forcing them not to invest in risky innovative initiatives with a long payback period. Econometric analysis reveals that financial income of Italian non-financial companies was found to be positively associated with their R&D expenses. This finding may support the economic theory of the mainstream literature, which argues for the beneficial effects of financialization on the economic growth and is inconsistent with many empirical results received by the Post Keynesian authors. The possible reason for it is that the motivation of the Italian managers may be different from the Anglo-Saxon managers’ one and not characterized by the shareholder value orientation and short-termism.