Impact on Financialisation on Accumulation: Evidence from India

Abstract

The paper adds to the literature on financialisation with firm-level evidence from India, an emerging market in the growth phase, when capital accumulation is likely to be important. I use a broader definition of financialisation to add on to the investment function developed by Orhangazi (2008, Cambridge Journal of Economics, 32, 863). Empirically the above specification is tested for two samples of Indian non-financial firms for the study. The first, Group I, includes firms prominent on the stock market represented by the combined sample of NIFTY non-financial indices (ninety-two firms), and the second, Group II, includes a broader group of all non-financial firms (704 firms). Using the Arellano–Bond dynamic panel model, the paper finds that financialisation has a robust negative impact on capital accumulation. The negative impact of financialisation is reflected in higher financial income for both the samples, underlining a likely trade-off between income from core activities and real capital accumulation.