Financialisation and intangible assets in emerging market economies: evidence from Brazil

Abstract

Whereas previously scholars advocated a positive relationship between a growing size of the financial sector and economic growth, most recent evidence has shown that this might not be the case at all times. The financialisation literature has pointed to some of the mechanisms through which the increasing size and changing structure of the financial system might weigh negatively on growth through the changing financial relations of non-financial corporations (NFCs). This paper contributes to this debate on several grounds. First, rather than interrogating the relationship between finance and firms’ tangible investments, it focuses on firms’ intangible investments, arguably a sine-qua-non for innovativeness and productivity-enhancing structural change. Drawing on an emerging literature on intangible assets, innovation, and development studies, we highlight the important role of investment into intangible assets, in the context of developing economies. Second, by bringing together the literatures on access to finance, intangible assets, and financialisation, we delineate analytically three specific channels through which finance can affect intangible assets. Third, this is the first paper that tests empirically all three channels using the population of publicly listed manufacturing companies in an Emerging Market Economy, Brazil over the period 2011–2016. Our results confirm the potentially negative impact of financialisation on intangible assets through the crowding-out channel, that is, firm’s increased tendency to hold financial assets reduces intangible assets. Our findings also confirm the shareholder-value orientation channel, that is, firm’s payments of dividends reduce intangibles assets.