The impact of financialisation on international corporate governance: the role of agency theory and maximising shareholder value

Abstract

The phenomena of financialisation has had a universal and pervasive impact upon economies and societies in recent decades. Global finance is now typified by a more international, integrated and intensive mode of accumulation; a new business imperative of the maximization of shareholder value; and a remarkable capacity to become an intermediary in every aspect of daily life. The finance sector has progressively increased its share of GDP, and even for non-financial corporations the pursuit of interest, dividends and capital gains outweigh any interest in productive investment. As non-financial corporations have become increasingly drawn into a financial paradigm they have less capital available for productive activity. These financial pressures are translated into the operations of corporations through the enveloping regime of maximising shareholder value as the primary objective. Agency theory has provided the rationale for this project, prioritising shareholders above all other participants in the corporation. This article seeks to discover the origins of the financialisation of corporations in the early development of agency theory and shareholder value in Anglo-American corporations. The enduring myths of shareholder primacy are examined. The article concludes with a consideration of how the reform of corporate law might serve to strengthen the recognition and pursuit of the wider purposes of corporations and longer-term investment horizons.