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The myth of the shareholder revolution and the financialization of the firm

Knafo, Samuel and Dutta, Sahil Jai. 2019. The myth of the shareholder revolution and the financialization of the firm. Review of International Political Economy, ISSN 0969-2290 [Article] (In Press)

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Abstract or Description

This article re-examines the shareholder value revolution of the 1980s to challenge the dominant conception of the financialization of the firm. This transformation is widely interpreted as a re-alignment of corporate management in response to growing shareholder power and neoliberal managerial norms associated notably with agency theory. By contrast, we demonstrate how the financialization of the firm has its roots in the innovations made in 1960s America by a small group of outsider firms, the conglomerates, that challenged the corporate establishment. As we show, these firms pioneered financial techniques that profoundly transformed the nature of corporate strategy and launched a process of financialization as firms began to exploit the leverage financial markets could provide in various corporate contests. Taking stock of this historical lineage leads us to re-interpret the shareholder revolution of the 1980s. We demonstrate how the key features of this era: the orientation of firms towards capital market, the increase in shareholder activism, and the rise of agency theory, should be read as unintended outcomes of the success of financialized management and its destabilizing effects on corporate governance.

Item Type:

Article

Identification Number (DOI):

https://doi.org/10.1080/09692290.2019.1649293

Additional Information:

Subject classification codes: 16 political economy, N22 economic history, G34 corporate finance and governance

Keywords:

shareholder value, financialization, corporate governance, conglomerates

Departments, Centres and Research Units:

Politics
Politics > Political Economy Research Centre

Dates:

DateEvent
17 July 2019Accepted
7 August 2019Published Online

Item ID:

26747

Date Deposited:

13 Aug 2019 10:16

Last Modified:

14 Aug 2019 12:05

Peer Reviewed:

Yes, this version has been peer-reviewed.

URI:

http://research.gold.ac.uk/id/eprint/26747

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