2.3 SPECIFIC METHODS EMPLOYED
2.3.3 Firm financial statement data and econometric analysis
This thesis focuses on the actions of the large non-financial corporation as critical to understanding the dynamics of financialisation, both advanced and subordinate. This focus is consistent with the central role attributed to the productive sphere in Marxian theory, and also emerges from the empirical analysis of bank-firm relations in Mexico in chapters six and seven. This poses the challenge of specifying changes in the behavior of these enterprises, and examining the relationship between these changes and broader societal transformation. As touched upon in the section above on national accounts, the SNA does not offer sufficient disaggregation or detail for this task. For this reason, additional insight has been sought in chapters eight and nine from the examination of the firm-level financial statement data of those entities listed on the Mexican stock exchange11.
Financial statement analysis has been conducted in order to provide an initial indication about the behavioural changes of interest, broken down along the lines of firm size and sector12. Corporate financial statements are, of course, not unbiased presentations of reality. While only annual statements are fully audited, quarterly data have been used in order to maximise the ability to capture the potentially more volatile flows of financial assets. Even in the case of audited statements, individual firms may employ transfer-pricing techniques in order to minimise tax payments. In consideration of this likelihood, and to avoid double-counting, consolidated financial statements have been used. Additional accounting techniques involving the manipulation of, for example, depreciation methods and accruals, may allow
10 This literature is discussed in detail in chapter three.
11 The data come from the financial statements of publicly-listed non-financial firms, as aggregated in the Economatica database.
12 Data limitations made it impossible to examine compositional effects related to ownership structures and degree of export orientation.
43 enterprises to present their year-end results in a more favourable light, understating cash and overstating fixed investment for example. However, through the use of a longer time series and the analysis of sectoral and aggregate transformations, such firm-specific effects should be mitigated. Aggregate irregularities over time, such as changes in accounting standards, have been noted in the analysis. Finally, as was the case with national accounts data, so too the use of line items from corporate financial statements is at odds with Marxian categories, only this time on a micro level.
However, an assessment of changing sources and uses of funding, as compared to an assessment of, for example, output and profitability, does not suffer unduly from this fact.
The first-cut analysis in chapter eight highlights secular changes in large non-financial corporations’ management of highly-liquid assets and in their capital structure. However, at the level of aggregated data, compositional effects may be obscuring any relationship (or suggesting a relationship at the aggregate level when one does not exist at the individual firm level). In order to attempt to unravel the potential relationship between capital structure and investment behaviour, panel time series econometrics is employed in chapter nine.
Classical econometrics was designed to seek confirmation of stable, usually linear, causality in the equilibrium relationship between independent and dependent variables. This reflects both an essentialist and atomistic ontology of agents’
behaviour, and a closed-system epistemology of causality. For these reasons, economists from a number of schools of thought, from Keynesians (Keynes, 1939; P.
Davidson, 1996) to Austrians (Hayek, 1948) and more recently critical realists (Lawson, 1997), have been skeptical if not altogether dismissive of the practice. The abuse of econometrics, particularly cross-country macroeconomic testing, has led to the charge from within the econometrics profession itself that the ‘arm-waving’ of rhetorical economic debate based on deductive assertion, “… has been replaced by t coefficient waving.” (Mayer, 1980, p. 166).
However, more recent methods, such as the mean group panel time series analysis employed in chapter nine, have loosened the restrictions on linearity and parameter stability. This allows for both agent and temporal heterogeneity and is more consistent with a materialist ontology, that is, it allows relationships to change following changes in material conditions. As a result, statistical relationships may be
44 interpreted as either manifestations of spatially and temporally transient causality, or replace causality altogether with a more complex understanding of tendency and counter-tendency.
The issue of ontological essentialism may be addressed by adopting a critical attitude towards the interpretation of results, rather than accepting statistical relationships prima facie. Indeed, combined with analysis from multiple vantage points of abstraction, econometrics can deepen an understanding of the real mechanisms and structures shaping agents’ actions. Results should be understood as a description limited to the spatial and temporal context out of which they emerged, rather than as the purely instrumental basis upon which to conduct formal modeling and statistical inference (often over fundamentally different contexts). The rejection of predictive econometrics in favour of qualitative characterisations of patterns in data is shared by a number of schools of thought, including institutionalists (Wible &
Sedgley, 1999). By limiting the use of this technique to the microeconomic level, and testing for structural composition effects between firms in the sample, the specificity of agents’ actions can be even more firmly rooted to their material context. Finally, caution must be shown in imputing motivation to the interpretation of firm financial statement data; between intention and outcome lies dynamic change and fundamental uncertainty.
2.4 CONCLUSION
This chapter first sought to lay out the political economy methodology motivated by the requirements of this research project. The ontological argument was made that an attempt to grasp the complex relations between finance and broader social reproduction must root its analysis in historically-specific material conditions. This has compelled the usage of a country case study to delve more deeply into dynamics revealed by empirical work with national statistics. Dialectics, reflecting both an ontological understanding and an epistemological approach, permit an appreciation of finance simultaneously as both a dynamic process and a relation between fractions of capital and between social classes. The approach adopted herein, which places the changing nature of finance within the context of transformations in the world market
45 is evoked by the interdependence of the particular to the totality which characterises dialectical thought. The technique of incorporated comparison seeks to illuminate the general phenomenon of financialisation from the particular reality of subordinate financialisation in the case study context. Abstraction of level, generality and vantage point will be conducted in order to provide a rich and varied understanding of the dynamics under study.
Against those who argue that methods are indelibly marked with the methodological premises from which they emerged, I have argued that with the appropriate qualification and through careful interpretation, mixed methods may be successfully employed in a way which is consistent with the broader methodological framework of critical political economy. This thesis employs three primary methods of analysis: national accounts statistical analysis, historical class analysis, and the econometric analysis of firms’ financial statement data.
First, the use of national accounts requires consideration not only of their technical limitations, but also an appreciation of the epistemological nominalism which they reflect. Rejecting causal inferences which take the nation-state as a self-evident unit of analysis, I have argued for a consideration of the data in the context of a dialectical relationship between the nation-state and the world market.
Second, to understand the particular manifestation of subordinate financialisation in the Mexican context would be impossible without careful historical class analysis. Drawing upon the tradition of Marx and Hilferding, I have argued that it is only through analysis of the relationship between different fractions of capital that a full understanding of the circuit of capital and the generation of profits can be gained. This insight provides the framework within which to understand the changing alliances of the bourgeoisie and the bureaucracy in contemporary Mexican society.
Finally, as macroeconomic data are unable to provide sufficient disaggregation, panel time series econometrics has been conducted on the financial statement data of listed Mexican firms. This was compelled by the need to more accurately specify changes in the behaviour of these enterprises, and to examine the relationship between these changes and broader societal dynamics. Agent and temporal heterogeneity afforded by the chosen panel time series method allows for greater consistency with the broader onto-epistemological approach. Caution in
46 interpretation implies the characterisation of patterns, rooted in a specific temporal and spatial contexts, where the relationship between intention and outcome is understood to pass through multiple mediations.