Equity issuance, share buy-back and growth in a Kaldor-Kalecki model

Abstract

Purpose

The aim of this article is to assess the macroeconomic consequences of some specific aspects of financialization (i.e. share buy-back) using a hybrid post-Keynesian model of growth and distribution based on Kaldorian and Kaleckian characteristics.

Design/methodology/approach

The study follows a post-Keynesian approach and deals with financialization issues by implementing several numerical simulations.

Findings

The numerical simulations reveal the negative real impacts of massive share repurchases on the rate of accumulation because they immediately siphon off revenues directly intended for investment projects. Moreover, the negative effect of share buy-backs is reinforced especially when firms' investment decisions are more sensitive to a variation in retained earnings. Next, this macro-model also reproduces several well-known figures of the Kaleckian tradition and the paradox of costs.

Research limitations/implications

The present article can be considered as a starting point for further theoretical extensions and requires empirical validation.

Originality/value

The Kaldor-Kalecki macro-model could be useful for policymakers who are interested in containing some of the negative excesses of financialization.

Citation

Charles, S. (2024), "Equity issuance, share buy-back and growth in a Kaldor-Kalecki model", Journal of Economic Studies, Vol. 51 No. 7, pp. 1440-1460. https://doi.org/10.1108/JES-07-2023-0353