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Financialized accounts: Restructuring and return on capital employed in the S&P 500

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  • Tord Andersson
  • Colin Haslam
  • Edward Lee

Abstract

A central feature of financialization is the argument that the relative autonomy of management has been realigned with the interests of shareholders and their demand for higher returns on capital employed (ROCE). This paper reveals that average ROCE in the S&P 500 has not been transformed in the 1990s, relative to an earlier period, even after extensive corporate restructuring. Deconstructing S&P 500 ROCE reveals how additional cash and profit generated out of income are offset by inflated balance sheet capitalization putting a brake on the ROCE. In the US business combinations are now accounted for at their market value and this, we argue, is forcing a financialized ratchet because management will need to step-up cost reduction to finance balance sheet restructuring. Corporate cash is being used to finance share buy-backs which: facilitate balance sheet restructuring, improve reported ROCE and provide a pool of treasury stock that can be used to reward managers who deliver shareholder value. This paper concludes that the nature and relative scale of these financial transactions can be employed to construct financialized accounts.

Suggested Citation

  • Tord Andersson & Colin Haslam & Edward Lee, 2006. "Financialized accounts: Restructuring and return on capital employed in the S&P 500," Accounting Forum, Taylor & Francis Journals, vol. 30(1), pages 21-41, March.
    • Handle: RePEc:taf:accfor:v:30:y:2006:i:1:p:21-41
    DOI: 10.1016/j.accfor.2006.01.001
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    Cited by:

    1. Inesa IACOB, 2014. "Fair-Value Accounting – Between Innovation And Need," THE YEARBOOK OF THE "GH. ZANE" INSTITUTE OF ECONOMIC RESEARCHES, Gheorghe Zane Institute for Economic and Social Research ( from THE ROMANIAN ACADEMY, JASSY BRANCH), vol. 23(1), pages 91-98.
    2. Müller, Julian, 2014. "An accounting revolution? The financialisation of standard setting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(7), pages 539-557.
    3. Volkow, Artiom & Droždz, Jolanta, 2016. "Evaluating Impact of the Common Agricultural Policy 2004-2013 Direct Payment Scheme on Economic Sustainability of Agriculture in Lithuania," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 253701, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).

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