Company-level industry classification can misallocate financial subsidiaries to non-financial sectors.

Evidence

A related problem to consider is how non-financial ownership of financial subsidiaries might affect estimates of financialization by blurring the lines between financial and non-financial sectors of the economy.As with the issue of dividends,the implications of this problem diverge for our two measures of financialization. The divergence,in this case,results from the way in which economic units are assigned an industry classification for purposes of incorporation into national economic data. Industrial classifications may be determined on an establishment or on a company basis.An establishment is an economic unit at a single physical location.A company is comprised of one or more establishments owned by the same legal entity, regardless of physical location. Establishments are assigned an industrial classification on the basis of their principle product. While companies may own establishments in many different industries,companies are assigned to an industrial classification on the basis of the activity that generates the largest revenue in all establishments. Thus, where data are reported on a company basis,individual establishments may be misallocated to whatever industry dominates revenues for the entire company. — Greta R. Krippner, The Financialization of the American…, 94

Categorization

• DEFINE: Clarifies the distinction between establishment and company basis for industry classification in national economic data.
• XREF: connects to: Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector — Greta R. Krippner, The Financialization of the American…, 84; Nonfinance firms increasingly derived income from financial markets — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18; Major nonfinancial corporations shifted their earnings toward financial operations — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 45 (+1 more)

Related

• Nonfinance firms increasingly derived income from financial markets (similarity 0.81)
• Financialization comprises both finance-sector dominance and nonfinance firms’ financial investing. (similarity 0.80)
• Financialization can be measured by comparing non-financial firms’ portfolio income to their cash flow. (similarity 0.79)
• Financialization must be measured by profit generation, not employment or output (similarity 0.79)
• Measuring finance’s rise by profits misleads if grouped under services. (similarity 0.79)
• Corporate spin-offs inflate portfolio income measures independently of financial orientation (similarity 0.78)
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector (similarity 0.78)

Broader Connections

• Measuring finance’s rise by profits misleads if grouped under services. #expands (0.90) — Greta R. Krippner, The Financialization of the American…, 21
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector #exemplifies (0.85) — Greta R. Krippner, The Financialization of the American…, 84
• Major nonfinancial corporations shifted their earnings toward financial operations #corroborates (0.85) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 45
• Nonfinance firms increasingly derived income from financial markets #corroborates (0.80) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18