Financialization and the firm

Parution :

Dietrich, M. and Krafft, J. (eds.), Handbook on the Economics and Theory of the Firm, chap.23, Edward Elgar, pp.308-323

Auteur(s) :

Michel Aglietta et Antoine Rebérioux

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Over the last two decades, stock market activity has grown sharply, in the USA as well as in Europe, while there has been a continuous increase of equity holdings by financial investors, to the detriment of households, cross-holdings by non-financial companies, families or the state. These evolutions have caused deep transformations at the corporate level : in particular, stock price has become a crucial metric for corporate management in listed companies, whose shares are traded on regulated markets. This process of ‘financialization’ of the business firm has had, and still has, dramatic consequences in terms of corporate governance and human resource management practices. This chapter intends to examine the extent and consequences of this financialization process. In addition, it offers an assessment of the way the 2008 global financial crisis might affect this process, by favouring the rise to power of long-term investors with specific asset management practices and corporate governance requirements. The chapter is ordered as follows. We document the rise to power of institutional holdings and the related consequences on corporate governance. We set out in greater detail the impact of financialization on labour. We analyse the emergence of a new class of long-term investors, as a probable response to the subprime mortgage crisis.