Takeover markets and institutional investors drove shareholder-value restructuring of corporations.

Evidence

Economic sociologists understand financialization as resulting from the confluence of diverse factors, including macroeconomic conditions, regulatory changes, and technological advances. In this perspective, financial domination over corporations was caused largely by the emergence of a corporate takeover market, which in turn is a product of disappointing corporate performance in the 1970s, deregulations of the financial industry by the Reagan administration, and a series of financial innovations such as junk bonds (Davis 2005). Through the active operation of a corporate takeover market, large conglomerates were broken into leaner and more focused firms, and compensation for executives was tied more closely to stock market performance. Along with this trend, corporate ownership became increasingly concentrated in a handful of institutional investors, who encouraged corporations to spin off inefficient parts, lay off employees, and engage in corporate restructuring, all in the name of maximizing shareholder value (Useem 1996). — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 31

Categorization

• XREF: Connects directly to the recurring shareholder-value-maximization debate in financialization literature; this is the economic-sociologist causal account used opposite the political account in paragraph 32. — connects to: Financialization shifted corporate power from manufacturing and marketing executives toward financial executives. — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 21; Corporate raiders acquired firms via shareholder control, leveraged debt, and asset stripping — Andrew deWaard, Derivative Media: How Wall Street…, 238; Hostile takeovers in the 1980s drove the financialization of corporations — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 49 (+12 more)

Related

• Hostile takeovers in the 1980s drove the financialization of corporations (similarity 0.88)
• Financialization shifted corporate power from manufacturing and marketing executives toward financial executives. (similarity 0.86)
• Conglomerate-era financial management prepared firms for shareholder-value financialization (similarity 0.86)
• Corporate restructuring since the 1970s stems from the neoliberal view of corporations. (similarity 0.82)
• Corporate management shifted from ignoring to obsessing over stock prices (similarity 0.81)
• US public corporations were dismantled in the 1980s as capitalism shifted toward financial speculation (similarity 0.81)
• Shareholder-value maximization went unanswered by any countervailing force (similarity 0.79)
• Hostile-takeover markets and Reagan politics, not finance theory, drove 1980s financialization (similarity 0.79)
• Competitive forces would discipline even the largest mergermade corporations (similarity 0.79)
• The mid-1980s bull market was driven by liberalization and leveraged buyouts (similarity 0.79)

Broader Connections

• Hostile takeovers in the 1980s drove the financialization of corporations #corroborates (0.88) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 49
• Corporate raiders acquired firms via shareholder control, leveraged debt, and asset stripping #expands (0.85) — Andrew deWaard, Derivative Media, 238
• Finance theory’s investor-centric view shaped American corporate governance toward value maximization #responds-to (0.78) — Donald MacKenzie, An Engine, Not a Camera, 1173
• Institutional investors’ cross-ownership creates anticompetitive power needing limits #complicates (0.75) — Andrew deWaard, Derivative Media, 1384
• Common ownership of competing firms suppresses competition and inflates prices #complicates (0.75)
• Corporate restructuring since the 1970s stems from the neoliberal view of corporations. #expands (0.72) — Philip Mirowski & Dieter Plehwe (eds.), The Road from Mont Pèlerin, 2133