Financialization and the Political Economy of Corporations

26 Pages Posted: 2 Feb 2017 Last revised: 3 Apr 2017

Anat R. Admati

Stanford Graduate School of Business

Date Written: January 13, 2017

Abstract

A common view in the finance, law and economics literature is that if corporations maximize shareholder value, they will act in society’s best interest. This view, however, presumes that contracts and laws create competitive markets that are free of fraud and address distortions and negative externalities, which is frequently false in reality. Those who control corporations and those acting on behalf of governments have incentives to benefit themselves even at the expense of others. The political economy forces that affect the interactions between corporations and governments often cause inefficiencies and harm, and it is challenging for society, even in well-functioning democracies, to hold governments accountable. The financial sector is an extreme example of the issues, but the problem is pervasive. I will discuss many examples that illustrate the importance of viewing corporations in a larger political context.

Keywords: Political Economy of Corporations, Corporate Fraud, Rent Seeking, Political Bargains

JEL Classification: G3, P1, P16, N2

Suggested Citation

Admati, Anat R., Financialization and the Political Economy of Corporations (January 13, 2017). Rock Center for Corporate Governance at Stanford University Working Paper No. 225; Stanford University Graduate School of Business Research Paper No. 17-11. Available at SSRN: https://ssrn.com/abstract=2909183

Anat R. Admati (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4987 (Phone)
650-725-6152 (Fax)

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