A Keynesian Approach
Chapter 5: Financialization, Shareholder Value and the Theory of the Firm: Financialization and Management Priorities
5. Financialization, shareholder value and the theory of the ﬁrm: ﬁnancialization and management priorities 5.1 INTRODUCTION Most OECD countries have experienced a marked slowdown in growth and accumulation from the 1960s to the 1990s. In this chapter we argue that ﬁnancialization, that is the adoption of shareholder value orientation by non-ﬁnancial businesses and their increasing investment in ﬁnancial assets, is an important factor in the slowdown of accumulation. The argument is not that investment in ﬁnancial assets itself causes a reduction in physical investment, but that ﬁnancial investments are a symptom of the changes in management priorities – or preferences of management, if one prefers. In a nutshell, the argument is that a change in the institutional setting of the ﬁrm occurred. The Golden Age was a period of relatively autonomous management that lead to a growth-oriented investment policy, which has been called ‘managerial capitalism’. Starting in the 1970s shareholders made stronger claims on management by means of the development of a market of corporate control (hostile takeovers and so on) and changes in the remunerations of managers (performance-oriented pay schemes for example). This led management to adopt, or at least follow, shareholders’ preferences, which implies a shift in management priorities from growth to proﬁts. If there is a trade-oﬀ between growth and proﬁts, which is a standard assumption in the literature, then this will translate into lower investment (on the ﬁrm level). The chapter introduces the concept of ﬁnancialization, that is the growing importance of income from...
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