A Theory Of The Financialized Firm

Adam Leaver is a Professor in Financialization and Business Analysis at Alliance Manchester Business School. He has published a number of co-authored books and international peer-reviewed academic journal articles on the financial services sector, financialization and financial crisis. He was previously a researcher at the Centre for Research in Socio-cultural Change (CRESC). His current research focuses on three areas. Adam is using social network analysis to map the relationships within certain complex securities markets. He employs the concept of ‘social network risks’ to consider the sociological character of systemic risks. He is also involved in a project on the sociology of metric gaming within the financial services sector. Finally he is interested in revisiting theories of the firm after financialization, exploring the growing importance of law and accounting providers in the de- and re-temporalisation of income and costs.

Keir Martin is Associate Professor of Social Anthropology at the University of Oslo.  Prior to this he was a lecturer in Social Anthropology at the University of Manchester, and has previously been a research fellow at the University of Aarhus (Denmark), the Australian National University, and the Max Planck Institute for Anthropology (Germany).  He has conducted fieldwork in Papua New Guinea’s East New Britain Province since 2002.  This research was focussed on the reconstruction and resettlement of the inhabitants of the town of Rabaul and neighbouring villages following the volcanic eruption of 1994.  This research has led to a number of publications, most notably his 2013 monograph, The Death of the Big Men and the Rise of the Big Shots: Custom and Conflict in East New Britain, published by Berghahn Books.  This monograph was described by American Anthropologist as, ‘A fascinating, plainspoken new ethnography… the start of a new Melanesian sociology’, and by Pacific Affairs as, ‘A groundbreaking ethnography: brilliantly conceived, clearly written and utterly convincing’.  This work focuses on the emergence of new forms of social stratification in Papua New Guinea and the rise of contested assertions of individual autonomy and freedom from customary obligation as a key constituent of that emerging stratification.

Martin is author of thirty other peer-review publications and is a former winner of the Royal Anthropological Institute’s Sutasoma Award for research, ‘of outstanding quality and likely to make an important contribution to Social Anthropology’.  His recent work has developed the conceptual apparatus used to analyse the rise of contested individualism in the South Pacific to more general analyses of contested incidents of individual personhood.  In particular, his work has looked to interrogate the nature of the corporation as a legal person, particularly in the UK and to ask what the changing nature of debt in the 21st century might mean for the kind of ‘person’ that the corporation might be turning into.  Martin’s work applying insights from South Pacific ethnography to contemporary capitalism has also appeared in the public arena, with articles using this material to question assumptions of rational markets appearing in The Financial Times and The Guardian.  In addition to this work, he also conducts research on the global spread of psychotherapy.   He is a qualified psychotherapist and is the editor of a forthcoming volume on the relationship between psychotherapy and anthropology in the 21st century to appear with Karnac Books in 2018.


The recent events at BHS demonstrate how owners use complex firm structures, intercompany debt and limited liability privileges to avoid tax, pay special dividends and limit owner obligations. These financialized practices are now commonplace across much of the corporate sector (see Bowman et al 2015), raising important questions about the contemporary social and economic purpose of the firm. In light of this, our project aims to explore the social, moral and legal foundations of the financialized firm and to develop a new theory of the firm (TOTF) from this analysis. This TOTF aims to challenge mainstream Economic theories that understand the purpose of the firm deductively – in the abstract – from theory, and therefore tend to be ahistoric, tautological and inadequate when explaining contemporary corporate practice.. Our work will: i) explore how financial extraction for elite advantage has become central to the financialized

i) explore how financial extraction for elite advantage has become central to the financialized firmii

ii) locate these financialized practices within a broader history of the changing relations and obligations around the firm, looking at the evolution of the financialized corporation inductively from empirical and archival work, not deductively from theory.iii) show that the purpose of the firm was never singular: it does different things and serves different interests at different points in time.

iii) show that the purpose of the firm was never singular: it does different things and serves different interests at different points in time.

iv) develop a new empirically informed theory of the firm that engages with these specifics, to better understand the financialized corporation in context.Our conceptual approach is necessarily interdisciplinary and draws on the anthropological and critical accounting methods employed in Leaver and Martin (2016). We aim to publish our ideas as a co-authored book, making a critical contribution to knowledge in the field by re-evaluating the moral foundations of our financialized economy. In so doing we hope to promote the ISRF’s goals of developing interdisciplinary research that improves understanding of social entities and processes.

The Research Idea

Our research idea is to produce a new theory of the firm (TOTF) to make sense of the financialized corporate practices in the UK, which mainstream economic accounts now struggle to explain.Our thesis is that corporate structure, strategy and practice changed in the 1980s, leading to amongst other things: i) a growing use of tiered holding companies to complicate liability obligations, ii) transfer pricing and earnings stripping accounting practices designed to immure more surplus within the corporate network and evict the state’s claim, and iii) the use of debt and special dividends to make large one-off extractions to shareholders. In short the firm became less a profit generating organisation and more an instrument through which relations, claims and obligations could be rearranged to facilitate risk-free financial extractions for elites. It is for this reason that ostensibly bankrupt firms like BHS are still attractive if an extractive potential remains.Our argument is that these practices are very different to those that existed or were envisioned when limited liability status was granted to firms in the Companies Acts of 1855 and 1862. There is therefore a social, economic, and even moral imperative to theorise these changes. Such a theory would need to be grounded historically and engage the changing relations and obligations of elites and firms (and the relations they CONFIDENTIAL 85 85 987 – Martin embody). It would also understand change dialectically, as firms are shaped by, and in turn shape, their environment. That is what our alternative theory of the firm proposes to do.


There are two main reference points in our project. First we engage mainstream economic TsOTF which are drawn deductively from economic theory and view the firm as the product of a singular driver like minimising transaction costs (Coase 1937), resolving co-ordination problems (Jensen and Meckling 1976) or retaining resource-based advantage (Barney 1986). These theories also share an underlying a priori: if markets are efficient, but firms exist then firms must deliver some form of efficiency in situations where market co-ordination is sub-optimal.Such theories have limitations. They are derived axiomatically rather than grounded historically and so often ignore or mis-represent much that firms actually do. They also struggle to engage with the changing social, economic and moral purpose of the firm in different conjunctural periods. They also assume firms are efficient, when firm efficiency might become a secondary concern if, through the use of intercompany debt and special dividends, firms become instrumental conduits between debt markets and owner returns; as instruments of extraction rather than sites of efficient profit generation.Following on, our second point of reference is the literature on financialization which we will seek to update. Much has been written about shareholder value and governance (Lazonick & O’Sullivan 2000; Fligstein 2007). But this does not amount to a financialized theory of the firm which encompasses the corporation’s social, economic and moral purpose. To date we can find only two relatively old and less well known works on this subject: Dallery (2009) and Stockhamer (2004).

The Focus

This research focuses contemporary concerns about corporate misbehaviour and the financial fragility of many UK firms; whilst also addressing the drivers of intrafirm inequalities. Economic theory’s emphasis on markets and efficiency, struggles to engage with the financially focused strategies of utility providers like Veolia and Biffa (Bowman et al 2015) or those that caused BHS’s bankruptcy (Sikka 2016). We aim to theorise and explain the emergence of such practices by outlining the changing social, economic and moral purpose of the firm after financialization. We do this by analysing what firms actually do and what arguments, legislation etc allow them to act in this way,, so that the firm may serve different purposes at different points in timeThe analysis focuses on two key time-periods. First it will focus on the arguments made in favour of the creation of the limited liability corporation after the various Companies Acts in the mid nineteenth century. Second it will analyse how the growing financialization of the economy since the 1980s presents a challenge to the political justifications made in the 1800s. We focus on whether the corporation encourages entrepreneurial risk taking by owners or whether it now works to insulate elites from risk by channelling extracted wealth into a smaller number of private hands. In contrast to traditional analyses of the corporation that explored the ‘agency problem’ of owners and managers’ supposed divergent interests, our focus is on understanding the emergence of a super-rich strata of elite managers and employees, alongside traditional owner elites.

Theoretical Novelty

We provide two areas of theoretical novelty. First, we approach corporations as relational entities – where the structure and character of those relations create or obscure certain rights and obligations, which may change over time. Second, because they may change, we aim to produce a new TOTF that is historically and empirically grounded and not based upon the determining logic of a single abstract economic principle or an appeal to market logics. The emphasis on the firm as an amalgam of changing relations and obligations builds on similar anthropological analyses of social groups as diverse as clans or castes. The kinds of relations that therefore go into the making of the corporation are always subject to change and to different, contested interpretations of which claims and obligations are morally legitimate. For example, global parents’ contemporary use of intercompany debt to de-equitise their UK subsidiaries is viewed as a legitimate means of managing taxation costs, but would have been deemed illegitimate in the mid-1800s when the purpose of the limited liability firm was to increase the amount of equity capital invested to improve the social weal. The character and purpose of the firm is therefore contextually contingent, so that it may serve different interests and do different things at different points in time. It is from this perspective that we aim to develop a TOTF that engages with the rise of financialization, where to date we can only find two works on this subject: Dallery (2009) and Stockhamer (2004).


Our aim is to write an empirically and historically informed TOTF which helps us make sense of the financialized corporation. Our theoretical approach is to understand the firm as an amalgam of contested relations that are shaped by – and in turn shape – different claims and obligations. Our methodology reflects these two aspects. Our method combines an anthropological sensitivity to the shifting social interests and relations that determine the boundaries of the corporation and what practices are deemed to be legitimate within those boundaries. A critical accounting approach is then able to make sense of these financial practices in existing firms. The two investigators on this interdisciplinary project combine this skill-set: Martin has experience in both ethnographic and archival research and Leaver has expertise in critical accounting, with background also in archival research. A paper using this interdisciplinary method has already been published (Leaver and Martin 2016). Sources such as company records, legal judgments, newspaper reports and records of political debate will be used to trace the different arguments used to justify the construction of particular corporate forms in different contexts. In addition to this archival work, Martin will conduct ethnographic interviews with corporate lawyers to understand how conflicting moral obligations are condensed into the creation and maintenance of a particular legal entity. These research strands will go into constructing unique case studies of particular corporations from the late Victorian age and the current era of financialization in order to challenge the theoretically deduced Economic TsOTF.

Work Plan

The two main investigators are splitting the grant, giving six months each to work uninterrupted on the project. We have already worked together extensively on the theoretical framework for this project, having co-authored two papers, (one published and one in the final stages of pre-submission preparation). Consequently, we will use the time to build our historical analysis from archives and company accounts to enable us to concretely explore the shifting social, economic and moral character of the corporation in the UK. Because we work collaboratively and iteratively, we aim to take 6 months research leave simultaneously, beginning Sept 2017. Both of our institutions have given their consent and support.The first three months of the project would largely involve the collection and analysis of data, through interviews and archival analysis of company records and legal documents to illustrate the general thesis that a variety of social interests go into making up the corporate form and that their relative balance and importance shifts over time. In the second three months, we intend to complete a manuscript based on our previous work together and this archival research. The intended outputs would then be a monograph that describes and theorises contemporary financialized corporate practice within the framework of a new and updated theory of the firm. We also intend to publish one article in a major management journal outlining this new theory. In addition we intend to build an online bibliography of resources for future researchers working in this area.


There are two major outcomes. First, we will update contemporary work on financialization moving beyond theories of shareholder value to focus more squarely on value extraction. This will provide the launch-pad for a major contribution to one of the central political and economic problems of the current era; namely the perceived inability of the contemporary corporation to fulfill the role of organising investment in economic growth and prosperity that underpins its justification. Such ideas are already emerging in discussions about the problems of secular stagnation (Summers 2016).Second, we will outline a new theory of the firm that diverges radically from current theories that are no longer able to make sense of the corporation’s structure and role in a contemporary financialized world. This UK-focused example could provide the basis for a more in depth research programme designed to empirically explore the different ways in which corporations have been constructed and have shaped political economies across different eras and in different cultural contexts. This could involve historians, political economists and anthropologists to provide a large scale historical overview of the corporation and its influence on wider society. In particular we envisage comparative ethnographic work in different areas of the world able to draw out the common features of corporate formation and dissolution in the current era of financialized globalisation. This future project would lend itself to a major research grant bid funded by e.g. an ERC Advanced Grant or a Horizon 20/20 grant.