Financial valuation theory legitimizes financiers’ power by claiming they optimize resource allocation.

Evidence

According to this second valuation technique, the value of anything can be reduced to a couple of indicators (risk and return). Portfolio management models then provide easy techniques to manage investments. This information reduction also makes it possible to manage risks: describing them in terms of volatilities makes it easy to devise ways of diversifying them. These ideas paved the way for very strong assumptions about the special abilities of financial actors such as fund managers and investment banks—abilities deriving from their presumably good intellectual equipment. Investors—thanks to their special knowledge—are seen as the most capable of allocating available economic resources in an optimal way. Under these theories, these actors’ capacity to discern the most profitable investments (through examination of a wide universe of possible investments and application of models of investment choices) and diversify risks (through their portfolio, and their exchange of risks, since these actors are considered capable of calculating risks, assigning a price to them and trading in them) makes them supposedly the actors best placed to decide for the common good because they are the best able to improve overall economic efficiency. These ideas provide strong backing for the expansion of the power held by financial actors. — Ève Chiapello, Financialisation of Valuation, 36

Categorization

• XREF: Connects to the reader’s finance/financialization theme: this is the ideological machinery by which financialized valuation colonizes decisions about the common good. — connects to: Economic justifications let financiers view profit-seeking as serving the common good; Efficient-markets and random-walk theory legitimized options against their scandalous reputation. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62; Finance theory’s investor-centric view shaped American corporate governance toward value maximization — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1173 (+6 more)
• SEED: Angle: how the reduction of value to two indicators (risk/return) is itself a colonizing epistemic move that pre-empts other valuations of what is worth doing.

Related

• Investor-style valuation techniques now shape public policy with coercive force (similarity 0.85)
• Finance theory’s investor-centric view shaped American corporate governance toward value maximization (similarity 0.84)
• Accounting standards prioritize investor needs over other users, spreading financialized valuation broadly. (similarity 0.82)
• Financialisation also colonizes non-economic spheres via valuation techniques. (similarity 0.81)
• Financialization establishes ideological dominance of individual profit over collective interests (similarity 0.81)
• Financialization treats risk as probabilisable, displacing close knowledge of the object valued (similarity 0.81)
• Financialised valuations override prior forms of valuation and reshape how people act and identify (similarity 0.80)
• Shareholder value maximization is defended as a social-welfare criterion. (similarity 0.80)
• Financialised valuation draws on financial economics and mathematical finance. (similarity 0.80)
• Modigliani-Miller made market-value maximization the test of corporate investment (similarity 0.79)
• Financial language now reshapes public policy domains historically governed by other values. (similarity 0.79)
• Financial practice expresses class and acts as a control mechanism (similarity 0.78)
• Finance derives prices for new objects from unrelated market prices (similarity 0.78)

Broader Connections

• Shareholder value maximization is defended as a social-welfare criterion. #exemplifies (0.88) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 63
• Economic justifications let financiers view profit-seeking as serving the common good #expands (0.85)
• Financialization establishes ideological dominance of individual profit over collective interests #expands (0.80) — Aris Komporozos-Athanasiou, Speculative Communities, 109
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #expands (0.78) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• Investor-style valuation techniques now shape public policy with coercive force #expands (0.78) — Ève Chiapello, Financialisation of Valuation, 108
• Finance theory’s investor-centric view shaped American corporate governance toward value maximization #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1173
• Option pricing theory serves as the test case for performativity. #exemplifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 124
• Financial practice expresses class and acts as a control mechanism #complicates (0.72) — Natascha van der Zwan, Making Sense of Financialization, 20