Financialized Firm Behavior and Shareholder Value Maximization as Barriers to Quantitative Easing (Other (Not Listed) Sample)
Leading and Managing in Global Environment: Part A – A2 Assignment – Final Individual Assignment
1. Discuss in maximum 1,000 words a) how financialised firm behaviour where the purpose of the firm is to maximise shareholder value has been an obstacle for quantitative easing by central banks after the 2007 crisis to stimulate investments and economic growth and b) how a transition to a stakeholder value-driven firm can be achieved. You are expected to use all of the following course readings in answering the question.
1. Ertürk, I. (2016) “Post-crisis central bank unconventional policies and financialised transmission channels”, Study, Foundation for European Progressive Studies, Finance and Inequality Project, available at: https://www.research.manchester.ac.uk/portal/files/51203791/erturk_cb_polici es_and_financialisaiton_FEPS_study.pdf 2. Ertürk, I. (2020) “Shareholder Primacy and Corporate Financialization” in Mader P., Mertens, D. and van der Zwan, N. (2020) International Handbook of Financialization, Routledge, Oxon, London 3. Mayer, C. (2021) “The Future of the Corporation and the Economics of Purpose”, Journal of Management Studies, 58(3), pp.887-901 4. United Way Social Purpose Institute (2022) The Social Purpose Transition Pathway, available at: https://www.corporateknights.com/wpcontent/uploads/2022/04/The-Social-Purpose-Transition-Pathway-March2022-Full-Report.pdf 5. Evans, J. and Agnew, H. (January 12, 2022) “Mayonnaise with ‘purpose’ rebuke shows discontent Unilever facing”, Financial Times, available at: https://www.ft.com/content/8feb8f98-c6d9-4288-9ce8-9e68be621a60
2. Choose a public company -a company listed in stock market and publishes annual reports in English- and read the company’s last two years’ reporting of its ESG (environment, social and governance), its contributions to the United Nations Sustainable Development Goals (UN SDGs), sustainability, corporate social responsibility (CSR) activities. You should also research other publicly available sources on the company’s such activities. Then in maximum 2,000 words: a. critically analyse whether this company intends to present a narrative and to create a halo effect of doing good without providing verifiable data and evidence,
January 2023 SEMESTER – ASSIGNMENT QUESTIONS
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b. advise how this company can have its stakeholders get involved in identifying and measuring the impact of its ESG, UN SDGs, sustainability, CSR activities.
You are expected to use the concepts, analytical frameworks, and insights from the following course readings in answering Question 2: 1. Leins, S. (2018) “Chapter 6: Construction of an Investment Narrative”, Stories of Capitalism: Inside the Role of Financial Analysts, University of Chicago Press 2. Arjaliès, D.L. and Bansal, P. (2018), “Beyond numbers: How investment managers accommodate societal issues in financial decisions”, Organization Studies, 39(5-6), pp.691-719. 3. Rosenzweig, P. (2014) Chapter 4 “Halos All Around Us” The Halo Effect, Simon & Schuster 4. Rosenzweig, P. (2014) Chapter 8 “Stories, Science and the Schizophrenic Tour de Force”, The Halo Effect, Simon & Schuster 5. Jones, B. and Nisbet, P. (2011) “Shareholder value versus stakeholder values: CSR and financialization in global food firms”, Socio-Economic Review, 9(2), pp.287-314. 6. Hiss, S. (2013) “The politics of the financialization of sustainability”, Competition & Change, 17(3), pp.234-247. 7. Agnew, H., Klasa, A. and Mundy, S. (June 6 2022), “How ESG investing came to a reckoning”, Financial Times, available at: https://www.ft.com/content/5ec1dfcfeea3-42af-aea2-19d739ef8a55 8. Temple-West, P. (May 23 2022) “Watchdog tackle the murky world of greenwash”, Financial Times, available at: https://www.ft.com/content/85ca91c0036f-47a1-9a76-3da48caf6851
The following will be taken into consideration in marking your assignment:
Comprehensiveness and accuracy of your use of the required readings in answering Question 1. Critical analysis of the chosen company using your own ideas and based on original research and the insights from the readings in answering Question 2. The relevance of the data and information on the chosen company’s ESG and social responsibility performance and activities in answering Question 2. Presentational qualities of your paper- citation, bibliography, paragraphing, spacing, spelling, quotations etc.
LEADING AND MANAGING IN GLOBAL ENVIRONMENT
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Table of Contents TOC \o "1-3" \h \z \u Leading and Managing in Global Environment PAGEREF _Toc127895346 \h 3How to Make the Move to a Stakeholder-Value-Driven Firm PAGEREF _Toc127895347 \h 5Examining Bakkavor’s Narrative and the Halo Effect PAGEREF _Toc127895348 \h 6Bakkavor's Ability to Involve its Stakeholders in the Process of Identifying its Activities PAGEREF _Toc127895349 \h 11Reference List PAGEREF _Toc127895350 \h 16
Leading and Managing in Global Environment
Financialized Firm Behavior and Shareholder Value Maximization as Barriers to Quantitative Easing
Central banks worldwide implemented quantitative easing in the wake of the global financial crisis of 2007 to spur greater economic expansion and investment. However, this technique needs to be improved by the behavior of financialized firms, whose primary goal is to increase shareholder profit. The activities of these companies have made it more difficult to enforce this policy. Since financialized businesses' primary goal is to maximize short-term shareholder value, these organizations commonly demonstrate short-termism. As a result of this focus on short-term profitability, there may be an insufficient investment in productive activities such as R&D, capital expenditures, and people recruitment. Financialized firms may exploit the low-cost loans provided by quantitative easing for stock buybacks and dividends instead of investing in productive activities that can generate long-term economic growth (Ertürk, 2016). Productive activities can be a long-term economic growth engine.
Financialized enterprises can transfer cash to shareholders through stock buybacks and dividend payments. Stock buybacks allow a corporation to reduce its stock's total number of outstanding shares while increasing the value of each outstanding share. Dividends, on the other hand, are payments provided to investors from a company's earnings. These payments are sent to stockholders weekly or annually. In the near term, shareholders may benefit from both of these actions if the price of the company's shares rises (Mayer, 2021). However, focusing entirely on stock prices in the short term could prove to be an expensive strategy in the long run. For example, instead of investing in R&D, which could result in the production of new products and services and, as a result, long-term economic growth, some corporations may choose to use the cash made available by quantitative easing for stock buybacks and dividends. This could have a long-term negative influence on economic growth.
Similarly, a company may pay its shareholders dividends rather than invest in capital expenditures, even though the latter would increase its long-term productivity and competitiveness. This behavior could reduce the effectiveness of quantitative easing in promoting long-term economic growth. This is due to the possibility that the monies granted will not be channeled into constructive activities that can create jobs, stimulate innovation, and boost economic output (Hiss, 2013). Unwillingness to invest in long-term growth possibilities may have unanticipated consequences that limit economic advancement in the long run. Policies such as tax breaks or regulatory changes that incentivize financialized firms to engage in productive activities that produce long-term value may be required to promote long-term economic growth.
One trait distinguishing financialized organizations from traditional businesses is their proclivity to invest in financial markets rather than the real economy. As a result, even if central banks give loans at low-interest rates, there is no guarantee that this would result in investments that will boost economic growth. The ability of quantitative easing to generate economic growth is being eroded due to acts like these (Ertürk, 2020). The allocated funds may be invested in something other than productive activities that create new job opportunities, encourage new technical developments, and increase overall economic production (United Way Social Purpose Institute, 2022). Furthermore, organizations that have become increasingly financialized may be more sensitive to unforeseen financial shocks, which may cause them to be cautious about engaging in new projects. As a result, the effectiveness of QE to stimulate economic expansion may be weakened even further. Companies that are overly focused on producing profits may prioritize profit over other societal goals, such as creating jobs or maintaining environmental sustainability (Evans & Agnew, 2022). As a result, it may be more challenging to foster long-term economic growth to the overall advantage of society.
How to Make the Move to a Stakeholder-Value-Driven Firm
There has been a growing realization that prioritizing shareholder value has had unanticipated consequences
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