The book chapter “A financialized account of corporate governance” constructs a ‘financialized’ account of recent changes in corporate governance and presents a theoretical framework centred on how companies account for and deliver value to shareholders.
The chapter focus on the impact of ‘fair value’ accounting on corporate strategy in the United States and the market for corporate control, where fair value reporting blends stock market value (wealth accumulation) with current earnings in corporate sector financial accounts. During periods of high M&A activity fair value accounting push balance sheet capitalization ahead of cash earnings capacity, thus putting a growing proportion of corporate market value at risk.
Data from S&P 500 firms suggest that firms are aiming to increase cash from operations and to modify the pattern of cash distribution towards equity investors to contain financial value at risk. The implications of ‘financialization’ of corporate governance are that it drives firms into “strategic arbitrage” in product, procurement and labour markets, since firms will be required to modify contractual relations and settlements to deliver shareholder value.
The chapter was published 2008 in the book “Corporate Governance and International Business: Strategy, Performance and Institutional Change” by Strange, R. & Jackson, G. (Palgrave Macmillan). The chapter was written together with Professor Colin Haslam, Dr Nick Tsitsianis and Dr Edward Lee. Read more about the book at Palgrave Macmillan.