Managerial and Social Implications
Chapter 4: Corporate governance and financialization
One of the most significant changes in the firm in the era of financialization concerns corporate governance, how the economic value generated in the firm is distributed between the firm’s various constituencies. While the regime of managerial capitalism enacted the firm as a socially embedded legal entity that needs to consider and effectively handle a number of social, economic, and legal relationships, the new regime of corporate governance treats the firm as a bundle of legal contracts that specify the rights to claim the economic value generated. As the new corporate governance model regards the market as the supreme processor of information in the form of market prices, it is the shareholders, being exclusively concerned with how much economic value that can be extracted from the firm, that most effectively should allocate the economic resources in the economy. While the previous regime of managerial capitalism was based on a socioeconomic model leaving room for politics and negotiations and took into account a variety of social interests and relations, the new regime of investor capitalism is directed towards the more narrow issues of value creation and value extraction. As will be discussed in this chapter, this distinction between the classic corporate governance model, emphasizing the institutional embeddedness of the firm, and the novel finance theory-based model that refuses to recognize any social considerations beyond the sheer accumulation and distribution of the economic of value generated in the firm, leads to a new theory of the firm.
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