Financialization can be measured by comparing non-financial firms’ portfolio income to their cash flow.

Evidence

One indication of financialization is the extent to which non-financial firms derive revenues from financial investments as opposed to productive activities. In the following analysis, I gauge the significance of financial revenues for non-financial firms by constructing a ratio comparing portfolio income to corporate cash flow. Portfolio income measures the total earnings accruing to non-financial firms from interest, dividends and realized capital gains on investments. Corporate cash flow is comprised of profits plus depreciation allowances. Thus, the ratio of portfolio income to corporate cash flow reflects the relationship, for non-financial firms, between the return generated from financial versus productive activities. — Greta R. Krippner, The Financialization of the American…, 47

Categorization

• DEFINE: Defines the portfolio income / corporate cash flow ratio that operationalizes ‘financialization’ for non-financial firms.
• ADDENDUM: Directly relevant to financialization as a structural shift in how firms make money — a natural companion to the sacrifice/trees pieces in the sense of how economic systems repurpose core functions.
• XREF: connects to: Nonfinance firms increasingly derived income from financial markets — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 18; Financialization is measured as the ratio of financial receipts to business receipts. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 66; Financialization must be measured by profit generation, not employment or output — Greta R. Krippner, The Financialization of the American…, 14 (+7 more)

Related

• Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s (similarity 0.92)
• Nonfinance firms increasingly derived income from financial markets (similarity 0.92)
• Financialization is measured as the ratio of financial receipts to business receipts. (similarity 0.91)
• Financial profits relative to non-financial profits rose three to fivefold by the late 1990s. (similarity 0.89)
• Financialization comprises both finance-sector dominance and nonfinance firms’ financial investing. (similarity 0.89)
• Financialization must be measured by profit generation, not employment or output (similarity 0.87)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.85)
• Corporate spin-offs inflate portfolio income measures independently of financial orientation (similarity 0.84)
• Nearly 40% of S&P 500 earnings came from financial activities by 2000 (similarity 0.83)
• Financialization cannot be reduced to stock market developments. (similarity 0.83)
• Depreciation allowances bias both profit and cash-flow measures of financialization in opposite directions. (similarity 0.83)
• Financialization marks a decisive shift from production-based to finance-driven accumulation. (similarity 0.83)
• Non-financial firms increasingly resemble financial corporations through revenue reliance (similarity 0.82)
• Opposing measurement biases strengthen confidence in the financialization trend (similarity 0.81)
• The US economy became increasingly financialized in the post-1970s period. (similarity 0.81)

Broader Connections

• Nonfinancial firms’ portfolio income relative to cash flow surged by the late 1980s #exemplifies (0.95) — Greta R. Krippner, The Financialization of the American…, 56
• Depreciation allowances bias both profit and cash-flow measures of financialization in opposite directions. #complicates (0.90) — Greta R. Krippner, The Financialization of the American…, 71
• Opposing measurement biases strengthen confidence in the financialization trend #expands (0.85) — Greta R. Krippner, The Financialization of the American…, 85
• Corporate spin-offs inflate portfolio income measures independently of financial orientation #qualifies (0.80) — Greta R. Krippner, The Financialization of the American…, 90
• Outsourcing trade receivables shifts interest income out of nonfinancial firms into the financial sector #complicates (0.80) — Greta R. Krippner, The Financialization of the American…, 84
• Financialization means accumulation through financial channels rather than production #expands (0.70) — Greta R. Krippner, The Financialization of the American…, 11