Shareholder Value Revolution and the Financialization of Corporate America

• In Event: 571 - Section on Economic Sociology Roundtables (one-hour)
  In Refereed Roundtable: Table 07. Institutions and Fields in the Business World

Abstract

During the past three decades, the U.S non-financial firms have been drastically financialized, by which I mean the replacement of regular business income with financial income. Now the non-financial firms are holding more financial assets than physical assets and are earning over 40% of their total income from financial channel such as interest, dividend, and financial gain (selling assets at a different price from buying). This proposal aims to define the causes of financialization and is the first to do this using firm-level data. The main hypothesis is that the increasing influence of shareholders to management is one main cause of financialization as shareholder value proponents’ short termism prefers financial investment that can yield swift profits over physical investment that needs time to generate stable revenue.

Author

• Gru Han, Harvard University