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Title: Financial operations of non-financial firms : the case of South Africa
Author: Karwowski, Ewa
ISNI:       0000 0004 6060 9803
Awarding Body: SOAS University of London
Current Institution: SOAS, University of London
Date of Award: 2016
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Using South Africa as a case study, this thesis examines what role financial operations play in the activities of non-financial firms and their impact on the macro economy. Rising corporate cash holdings are used as analytical lens to evaluate competing theories. South Africa, with its relatively deep financial markets, has elicited clear predictions from mainstream and heterodox economists. The former expect rapid economic growth driven by business investment, while the latter believe non-financial firms engage in financial speculation, thus reducing growth. While the thesis agrees with the heterodox view that changes in financial activity of South African non-financial corporations have had an adverse effect on financial stability and job creation, it challenges the simplistic view that non- financial firms have engage in more financial speculation. Crucially, since the 1990s non-financial corporations have shifted from using their financial resources to extend trade credit to small and informal businesses, towards active liquidity management. A driving force behind this trend are mining companies and large JSE-listed non-financial (and non-mining) companies, frequently engaged in merger and acquisitions. Thus, large South African non- financial corporations are overcapitalised, meaning they hold more liquid assets than necessary for their productive operations. This shift meant that informal companies, which notoriously suffer from poor access to finance, lost an important source of credit. The thesis argues that non-financial corporations' liquidity management facilitates credit extension by domestic banks, fuelling the domestic real estate bubble. Changes in financial operations of non-financial companies, under way since the 1990s, have impacted growth and financial stability adversely. Thus, this thesis argues against the mainstream claim that South African growth has been facilitate by the domestic financial sector, while shedding light on the complex processes behind the transformation of non-financial firms' financial transactions, which are not simply speculative as claimed by financialisation proponents. The originality of the thesis lies in its contribution to the understanding of the processes behind financial operations of non-financial companies, in particular how these firms utilise financial operations to support their speculation in real assets. As consequence, they are overcapitalised. The research also contributes to the growing literature on financialisation in emerging economies. The thesis develops an operationalisation of the concept of overcapitalisation and an original adaptation of existing flow-of-funds analysis of corporate investment.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral