Finance and Value Creation

Discussion of Video Presentations

Friday 28th August 15:15 – 16:15

Chair: Simon Lilley

Moad Musbahi – Family Finance: The FOREX Black-Market in Libya (2017-18)

During the period of two months, from November to December 2017, a square just behind the Central Bank of Libya in downtown Tripoli was pedestrianised. This seemingly innocent move, the paper will argue, was in fact a tactical financial strategy made by a series of interested groups vying for quick gains through a blossoming black-market foreign currency exchange. The paper will interrogate how this simple move can be used to unravel a series of process that eventually led to a situation in which there was a tenfold discrepancy between the Libyan Dinar and the USD in the official and black-market, occurring literally in the shadow the main financial institution of the country. The paper will show how the complex matrix between the political, social and religious dimensions were at play; between the abolishment of interest rates, the introduction of government issued Visa cards given to all registered families and these cards as financial instruments circulating independently from the hard currency that they were pre-paid with. Here the administrative logic of the family plays a crucial role in the arbitrate of an economic system, a logic that predated the 2011 regime change, and continues since, where finance is instrumentalised through a carefully considered bureaucracy and spatialization of social relations.

Pauline Gleadle and Mustafa Erdem Sakinc – Value creation versus value destruction: the financialization of Big Pharma?

The paper updates and builds upon Montalban and Sakinç’s (2013) analysis of the US pharma blockbuster (BB) business model (BM) and on Fernandez and Klinge’s (2020) report, a BM which continues to be followed by Big Pharma despite the lack of revenue growth over the last ten years. However rather than focusing on the companies alone, the paper analyses stakeholder contributions and their shares from value creation versus value extraction (Lazonick, 1994: Lazonick and Mazzucato, 2013; Mazzucato and Shipman, 2014), expressed in monetary terms. These stakeholders comprise not only the companies themselves and their executives, but also employees as value creators, investors and taxpayers. Moreover, in an attempt at adding another specifically new angle to existing studies of Big Pharma under conditions of financialization (e.g. Gleadle et al, 2014), we examine the major investment strategies of corporations and their capacity to generate innovative products that will eventually attract internal and external demand. These practices are compared with the incentives offered to corporate actors to allocate value created through productive activity across different stakeholder groups. In doing so, we are exploring whether there is a clear contrast between innovative firms and those which have become financialized. Our main research aim is to identify the winners and losers in terms of main supply-side stakeholder; groups within seven Big Pharma corporation during the period 2000-2019 inclusive, during a time when the sector faced dual challenges from both the BB crisis and financialization.

Stephanie Barral and Ritwick Gosh – Limited Scope of For-Profit Conservation Finance

In this paper, we analyze private conservation finance. Historically, conservation, like other public goods, is funded through taxpayers or philanthropies. However, since 1970s there is a growing sense that states are unable to address climate and biodiversity problems. A need arises for private sector to mitigate its own impacts on the environment through policies like offsetting. Offsetting refers to mechanisms in which ecologically destructive developments mitigate their impacts by financing conservation elsewhere. With private developers willing to pay for conservation, a market for supplying conservation emerges. For this market to work while being ecologically coherent, a trade-off must be struck between economic opportunity and ecological controls. This trade-off is configured through a complex assemblage of private and public actors – bureaucrats, NGOs, private equity firms, environmental consultants, and scientists, as well as non-human actors – quantification tools, performance metrics, interest rates, and maps. We analyze these trade-offs to show that odds are stacked against scaling up conservation finance. First, interviews with national and international conservation investors reveals how investments are narrowly scoped. Only certain species and habitats align with the parameters of conservation financing while others are ignored. Second, a state-level case-study in Oklahoma shows how offsetting may tie conservation to the trajectories of industry. While a cottage industry for conservation finance may emerge, this industry is structurally dependent on the “demand-side” industry, and largely powerless to shift political economic structures in its favor. We conclude that some private capital may spill into conservation, but any snowball effect depends on the relative muscle of this emergent conservation finance cottage industry to established industrial interests.

Alessandro Maresca and Giulia Dal Maso – The greening of assetisation between eco-alchemy and interpellation

The rise of the new green finance theorem delegates to the market the re-evaluation of assets under the lens of climate change. This new system of valuation only occurs when policy makers value as “green” those assets that are less exposed to transitional risk than “brown” ones.  Building on the burgeoning literature on green bonds, we discuss the emergence of the greenium, i.e. the additional premium investors pay to acquire a “green” asset. By linking it to the history of non-financial disclosure and climate related risk, we show how “green” assets are coming to life as ontologically different.

Through observations of technoscientific assessments performed by auditing processes, we explore how “green value” relies on a new form of valuation.  Namely, green assets are not defined in monetary terms or through processes of enclosure that give rise to “property rights” generating future revenues. Instead, they are valuated through physical modelling of future CO2 emissions.

On the basis of this eco-alchemy, we observe how regulators interpellate “green” issuers and investors through new disciplinary mechanisms such as non-financial disclosure.  We argue that only if this interpellation is “felicitous,” the green value can eventually be translated in monetary terms, thus producing the greenium.  Despite this new valuation reflects the growing attention of financiers to environmental issues, we show how its mechanics ultimately subsume to the larger processes of financialisation as we know it.

DT Cochrane – Where is Rent in Compustat? Economic Rent, Finance & Methodological Ambiguities

My aim is to analyse the methodological relationship between economic rent as a concept and corporate financial metrics recorded in the Compustat database.

The driving reason to do this is the renewed interest in economic rent in the social sciences. Rent is conceived in many ways, but in critical social sciences it is often rooted in the labour theory of value from classical political economy. Rent, wages and interest were the categories of income received by the landlord, the worker, and the capitalist, respectively. However, the distinction between rent and interest was eliminated by marginalist theory, which now dominates mainstream finance and economics. The resurgence of rent in critical social science offers a confrontation with these marginalist assumptions. Key to this confrontation is working through the methodological ambiguities that follow rent as a concept when applied to the financial metrics used to define the corporation, the dominant, contemporary economic form.

Financial categories still encode the analytical perspectives of mainstream finance and economics, representing an example of performative valuation since they configure both corporate value and the process of valuation itself. In order to analyse economic rent afresh, it is important to critically unpack financial categories. This raises the question: how can we use rent analytically to examine corporate finance? I suggest that confronting these categories necessarily entails a constructivist perspective on the qualities and quantities of financial values.