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Financialization and Manufacturing Firm Profitability under Uncertainty and Macroeconomic Volatility: Evidence from an Emerging Market
Author(s) -
Demir Firat
Publication year - 2009
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2009.00522.x
Subject(s) - profitability index , financialization , economics , volatility (finance) , panel data , monetary economics , durable good , investment (military) , profit margin , profit (economics) , finance , macroeconomics , microeconomics , econometrics , politics , political science , law
Using semi‐annual data from 1993 to 2003 for all publicly traded manufacturing firms in Turkey, this paper explores the impacts of macroeconomic uncertainty and external shocks on profitability of real sector firms in the presence of multiple investment options in both real and financial sectors. The paper argues that increasing availability and accessibility of investment opportunities in the financial markets help real sector firms sustain profit margins despite market rigidities, increasing goods market competition, or higher levels of risks. The empirical results based on dynamic panel estimations show that increasing macroeconomic uncertainty and volatility have a significantly negative effect on firm profitability. In contrast, increasing the share of financial investments in total assets is found to be reducing such negative effects at a statistically and economically significant level.