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        Financialized accounts : Restructuring and return on capital employed in the S&P 500

        Author
        Andersson, Tord
        Haslam, Colin
        Lee, Edward
        Attention
        2299/12418
        Abstract
        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
        Publication date
        2006-03
        Published in
        Accounting Forum
        Published version
        https://doi.org/10.1016/j.accfor.2006.01.001
        Other links
        http://hdl.handle.net/2299/12418
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