What do you understand by the term financialization? What factors are driving US firms to distribute more of their cash to shareholders?
The Bombardment of the psyche of the average citizen by the financial industry in newspapers, magazines, television and the internet offering different financial services from mortgage loans to credit cards brings to mind a question raised by Ismail (2008:1) “ … if finance is everywhere does this mean that we have in some sense become financialized.”
This essay sets out to answer Ismail’s question and give a better understanding of the term financialization. Firstly various view points and opinions of the academia, economic journalist, politicians and analyst in mainstream finance will be reviewed with the aim of examining financialization from their different perspective.
Secondly, the relationship between financialization, shareholder value, fair value accounting, share buy-backs, value creation, value at risk and value absorption will be examined to show how they are all interconnected in the process termed financialization. Further more factors driving the increasing distribution of cash to shareholders by US firms will also be discussed and how all these factors are geared towards achieving one singular goal – the creation of value for the shareholder.
Nolke and Perry (2007) views financialization from two perspective: Profit financialization and Control financialization. Nolke & Perry asserts that Profit financialization is where an organisation makes a greater proportion of its profit from financial activities relative to profit made from its production activities while Control financialization is described as the process by which shareholder value creation is the primary goa ...