Financialization: Stock Market and Share Buy-back Strategy
The Bombardment of the psyche of the average citizen by the financial industry in newspapers, magazines, television and the internet offering different financial services from mortgage loans to credit cards brings to mind a question raised by Ismail (2008:1) “ … if finance is everywhere does this mean that we have in some sense become financialized.”
This essay sets out to answer Ismail’s question and give a better understanding of the term financialization. Firstly various view points and opinions of the academia, economic journalist, politicians and analyst in mainstream finance will be reviewed …show more content…
Some firms employ the share buy-back strategy when certain conditions either in the market or economy or new legislation by government brings about a justification for such a change, this is called the miscellaneous motive.
Weston & Siu (2003) Suggests that share buy-backs are also used to address agency problem of mangers investing in non productive projects. Weston & Siu are of the opinion that firms use buy-backs to return excess cash to shareholders to avoid investing in projects with negative net present value.
In conclusion the long term effects of financialization are at best unknown, the reduction of a firms capital which firm justify with increased EPS and an increase in shareholder value may come to a head during a period of persistent losses by the firm where such losses have to be written off against non existent capital of the firm which has been traded away all to create shareholder value. Secondly as Lazonic and O’Sullivan (2000) pointed out firms disgorging all their excess cash to shareholders all in the name of