The academic paper ”Financialized accounts: Share buy-backs, mark to market and holding the financial line in the S&P 500” reveal that treasury stock repurchases have become an increasingly popular and significant use of cash resources in the US corporate sector.
In recent years the US corporate sector has deployed more cash from operations to finance the repurchase of outstanding share capital for treasury stock. Shares repurchased for treasury stock can help flatter earnings per share, fund senior management share option compensation schemes and finance corporate acquisitions. In financialized accounts these are now significant transactions which serve the financial interests of managers and investors.
The US Financial Accounting Standards Board (FASB) is now demanding a “greater use of fair value measurements in financial statements” with the result that share options and corporate acquisitions will be “marked to market”. This will force a financialized ratchet because managers in the S&P 500 will need step up cash extraction if they are to hold the financial line.
The paper published in Accounting Forum 2007 was written together with Professor, Dr Nick Tsitsianis and Dr Edward Lee. Read more about the paper at Accounting Forum - Holding the financial line.