To distribute larger profits among shareholders, these business firms are reducing their workforce sizes. Chief Executive Officers (CEOs) are often incentivised through stock options to prioritise these goals.
To further minimise the labour force, CEOs outsource specific functions and hire contractual workers to lower wage bills. Firms from the cement, banking, insurance, textile, and pharmaceutical sub-sectors have engaged in share buybacks over the last four years.
Borrowings increase the corporate debt-to-equity ratio, and firms face financial constraints when credit access becomes difficult. A shareholder value orientation prevents business firms from investing in risky ventures.
This orientation increases the level of debt in the economy while decreasing real investment. Financialised households are involved in debt-financed consumption, which transfers income from low-income consumers to high-income ones.
A decline in aggregate demand resulting from these trends has contractive effects on the macroeconomy.