Financialization directing strategy

Abstract

This paper constructs an account of how financialization is directing strategy in the S&P 500. Financialization describes how changes in US accounting regulations require firms to account for the market value of capital market transactions where corporate strategy is not simply concerned with delivering value creation but also reacting to value absorption in an era of shareholder value. Financialization is directing strategy and arbitrage to modify stakeholder financial settlements where an increased share of income is extracted as surplus cash and more of this cash from operations is being distributed to shareholders. Share buy-backs account for a substantial increase in the share of corporate cash distributed to shareholders in the S&P 500 which, we argue, reflects a strategic process of value creation and value absorption.