Financialization and ESG Investing: Implications for Real Investment and Economic Growth

Abstract

This research study explores the Pakistani non-financial firms by analyzing the intricate relationship among the variables financialization, sustainability reporting and accumulation of real capital. By studying the impact of non-operating profits, financial payments, corporate governance attributes, buybacks and environmental factors on real capital accumulation, this research provides insightful investment strategies. Underscoring the pivotal role of financialization in shaping investment decisions, the results suggests that financial payments put a positive considerable influence on real capital accumulation. On the other hand, buyback have negative insignificant impact on real capital accumulation which suggests that stock buyback do not significantly contributes to the real capital investments, whereas non-operating profits showed positive but insignificant impact on the real capital investment. Attributes of corporate governance are also studied, where independent board members and board size demonstrated significant and positive impact on the real capital accumulation. These findings are inline with the theories of finance i.e., agency theory and stakeholders’ theory, which emphasize the importance of larger boards and independent directors which help to promote the real capital investment. At the same time frequency of the meetings of board did not exhibit a significant positive impact on real capital accumulation. The study also examined the impact of environmental factors over the real capital accumulation in Pakistani firms, study of which reveals that these factors do not have any significant impact on real capital accumulation which raised the concern of environmental sustainability. This study will contribute to the literature of corporate investment decision making using the variables of financialization and sustainability, this also provides valuable insights for managers, investors, and policymakers in understanding the impact of real capital accumulation and the need for effective corporate governance practices.