The academic paper ” Financialized accounts: Restructuring and return on capital employed in the S&P 500” argued that managers of the S&P 500 constituent group of companies have delivered extra cash out of income as they struggle to hold financial line and maintain cash return on invested capital

A central feature of financialization is the argument that the relative autonomy of management has been realigned with the interests of shareholders and their demand for higher returns on capital employed (ROCE).

This paper reveals that average ROCE in the S&P 500 has not been transformed in the 1990s, relative to an earlier period, even after extensive corporate restructuring. Deconstructing S&P 500 ROCE reveals how additional cash and profit generated out of income are offset by inflated balance sheet capitalization putting a brake on the ROCE. In the US business combinations are now accounted for at their market value and this, we argue, is forcing a financialized ratchet because management will need to step-up cost reduction to finance balance sheet restructuring.

Corporate cash is being used to finance share buy-backs which: facilitate balance sheet restructuring, improve reported ROCE and provide a pool of treasury stock that can be used to reward managers who deliver shareholder value. This paper concludes that the nature and relative scale of these financial transactions can be employed to construct financialized accounts.

The paper published in Accounting Forum 2006 was written together with Professor Colin Haslam and Dr Edward Lee. Read more about the paper at Accounting Forum - Restructuring and ROCE.