Financial Strategy How Financialisation phenomenon has influenced corporate ownership and control Epstein (2001, 1) defines financialisation as the process where financial institutions, financial markets and financial elites gain higher control over economic outcomes and economic policies or become increasingly important…
Financialisation has influenced corporate ownership and control. Corporate control is basically the mode of its governance and this behaviour is what financial markets has worked to influence and change to align to their own interests. Financialisation has led to a change in corporate control in such a way that managers are disciplined by the prospect of ouster and takeover if they are unable to maximise profits. Because of this, managers are compelled to go for market efficiency improvements such as privately financed equity investments and leveraged buyouts as a way of satisfying stakeholder interests. Basically, managers of corporations are now forced to merge their interests with those of the financial markets. This has eliminated the countervailing force that previously interfered with the ability or willingness of managers to side with excessive financial interests. It has also broke the union-power that used to exist between corporations. This clearly depicts that financialisation has led to a drift in the corporate financial behaviour. Financialisation and its new approach to corporate control have fostered the growth of options like the stock pay option. The main reason behind this is that there is an increased need to align the interests of the management with those of the stakeholders and such options help to accomplish this task successfully. The top management of corporations have benefitted from these stock options and new pay practices and this has generated in managers the interest to maximise the short-lived stock prices. Financialisation has also led to excessive adoption of debt finance by corporations. The main motivation for this is tax code is more favourable to interest payments than on profits. In addition, managers of corporations have also adopted this strategy as a way of draining free cash from the firm leaving little for claimants on the income stream of the firm and putting pressure on workers (Bronars and Deere 1991). The overall effect of financialisation on corporate control is that corporate governance is becoming increasingly beholden to and dominated by financial markets. This implies that corporate managers have been pressurized to import behaviors from the current financial markets and these in turn have affected business decision-making and corporate investment. These investments and decisions include resource allocation whereby corporate managers of non-financial corporations have capitalized on stock repurchases as one of the main mode of corporate resource allocation. This has mainly been encouraged by the extent to which executives of corporations can enrich themselves by manipulating the stock prices of the corporation (Lazonick 2011, 11). These corporate control modes may be profitable and attractive and more profitable to firms. It also gives corporations a range of options for investing under various economic climates and profitability levels. For example, when profits achievable in financial markets are higher than those that can be achieved in the normal product market, then it becomes a motivation to corporation management to invest less in real assets and more on financial assets. However, such strategies may not be long-lasting. Palley (1995) and Palley (1997b), state that it is not good for the financial market behaviors of an economy or corporations are governed by short-terminism and herd behavior. Financialisation ...
Cite this document
(“Financial Strategy Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/60625-financial-strategy-briefly-discuss-how-has-the
(Financial Strategy Essay Example | Topics and Well Written Essays - 1000 Words)
“Financial Strategy Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.net/finance-accounting/60625-financial-strategy-briefly-discuss-how-has-the.
The planning involved in building an overall functioning programme of an entire organization is quite extensive and it demands the team’s effectiveness in analyzing different strategies and choosing the distinctive ones which are relevant to the firm and are capable to bring success at the end.
For instance, the countries also negotiate to reduce trade barriers for mutual benefits. The global economy has recorded tremendous growth primarily because of WTO, NAFTA etc. Business enterprises and consumers benefit from this expansion since new opportunities are created and new products are launched respectively.
A firm's value added is not solely associated with management's ability to manage cost centres: Other factors such as transparency, accounting for systemic risk, reliability, intangible assets and other factors must be considered in the post-meltdown market.
However, in order to achieve a balance between the risk and return profile of a firm, it is important that firm must develop and construct strategies which can allow it to generate the kind of value which can balance both the risk and return.( Arnold, 2007), Risk therefore can affect organizations in different manners and as such the overall development of the enterprise wide strategies, making of investment decisions, calculations of hurdle rates as well as the mergers and acquisitions decisions are almost all made based on the firm’s effort to balance its risk and return.
In this context, the present report focuses on the evaluation of financial strategy of Unilever. The stage of the organization is firstly decided using the organizational life cycle. The current position of Unilever suggests that it is operating in the matured position and is aiming towards sustainable growth in its business.
For an organization to have edge over its competitors it has to maximize all resources at the lowest possible costs (Ruth, 2006). The organization has to determine which and by how much resource must be allocated to a certain function. What is being referred here is the financial resource.
tal needs in support of its operational objectives over time as well as identifies optimum sources and manners for obtaining that capital.’(Richard D Harroch and Gregory C Smith, page 702)1 Financing a new business is based basically on the type of capital and amount of
The cumulative performance of both the firms is showing a consistent decline in the revenue as well as profitability of both the firms. This has also resulted into the decline into dividend paid out by the firms in order to maintain and sustain
Thus, a risk-conscious enterprise already has strategic plans in hand to handle any sort of crises prior to its happening and furthermore, it would inculcate such strategies in its daily working environment which would minimize any foreseen risks so as to avoid