Assessing financialization under international financial subordination: a mixed-methods study of Brazilian and Turkish non-financial corporations

Abstract

This article investigates the changing financial behaviour of Brazilian and Turkish non-financial corporations (NFCs) in the context of international financial subordination. Recent empirical evidence shows that emerging capitalist economies' (ECEs) NFCs have increased their holdings of very short-term financial assets (mainly cash), whilst borrowing heavily from (international) financial markets and banks. Drawing on an extensive mixed-method study, we show that, instead of being paradoxical or driven by speculative carry trade operations, the 'wasteful' combination of holding very liquid and lower yielding assets while borrowing at higher costs (largely denominated in foreign currency) can be contextualized in the subordinate integration of ECEs firms into the global economy. Whereas cash holdings protect against macroeconomic uncertainty, ECEs firm borrowing is largely determined by international market conditions in the context of structural financing constraints. Moreover, our results show the dualistic and heterogenous nature of ECEs firm financial behaviour, which mirrors the polarity observed in those economies' productive structure and structural balance of payments constraints: only firms with secure access to foreign exchange-either through exports or active internationalization-have the collateral to interact with global-dollar dominated-financial markets. Finally, our article points to the important, yet contradictory, role of the state in ECEs firm financial behaviour. In instances where foreign exchange generating activities in the private sector are not given, the state assumes a crucial role in enabling firms' engagement with global financial markets; yet it is that same engagement, which-in the context of international financial subordination-creates acute macroeconomic vulnerabilities which at times force the state to restrict those same operations.