Financialization, Loyalty and the Rise of Short-Term Shareholder Value

This paper takes the issue of the financialization of competitiveness as being concerned with the link between increased financialization and the reduced autonomy of company management. The paper understands financialization to mean the increased ability to trade risk, resulting from changes in the structure of financial markets and in the financial market actors active in those markets. The paper’s starting point is the focus in comparative political economy on national financial structures (e.g, Zysman 1982), and the view in that literature of capital market-based financial systems as increasing the autonomy of companies from the providers of financing, when compared to bank-based systems. Such a view appears at odds with the rise of shareholder value. The study seeks to address this inconsistency through a clearer understanding of the nature of different equity investor and market types. The ability to trade risk is linked to loyalty (Hirschman 1970). The paper considers the varying levels of loyalty of tracker funds, individuals, pension funds, insurance companies, hedge funds, private equity and international investors. It argues that these actors’ varying levels of loyalty, when combined with an understanding of which investors are active in which equity markets, help an understanding of companies’ levels of autonomy from short-term shareholder value pressures. FIRST DRAFT: PLEASE DO NOT CITE WITHOUT AGREEMENT