Increased Shareholder Power and Its Long-run Macroeconomic Effects in a Kaleckian Model with Debt Accumulation

Abstract

One of the main characteristics of "financialization" is the redistribution of income in favor of share-holders. In this study, we interpret pro-shareholder redistribution as a decrease in the retention ratio and an increase in profit share. Using both the Kaleckian macroeconomic model and the Minskyan taxonomy of the financial structure of firms, we investigate the long-run effects of such parametric changes on the rate of capital accumulation, the debt-capital ratio, and the financial structures of firms. A decrease in the retention ratio leads to lower capital accumulation under a debt-burdened growth regime and makes financial structures fragile. However, an increase in profit share increases the rate of capital accumulation and improves a firm's financial position in the long run if the short-run equilibrium is debt-burdened growth.