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The paper “Financialization as strategy: Accounting for inter-organizational value creation in the European real estate industry”, co-authored with Sebastian Botzem and published in Accounting, Organizations and Society, investigates an in-depth case study of a European real estate firm and its transnational relations with professional service firms, which together enable and drive a financialized business model. The key findings of our study can be summarized as follows:
- Financialized business models, which are based upon and tailor-made to suit financial market logics, emerge in tight collaboration between real estate firms and professional service firms such as auditors, (investment) banks, notaries, attorneys and realtors, each of which profits from rising real estate prices. Because rising prices allow revaluating and refinancing earlier assets acquisitions, providing the firm with additional funds for further acquisitions without the need to selling real estate.
- Management and structuring fees are key for the functioning and also the danger of financialized business models, which depend on rising price levels in real estate. Most of the fees are paid out to the various actors involved in real estate transactions already at the time the loans are awarded. Contrary to interest payments, which are distributed over the whole loan period, management and structuring fees increase profits – and thus also bonus payments – already in the year a transaction is made.
- Fees not only allow premature distribution of unrealized profits but also transfer of profits into offshore tax havens: structuring fees are calculated as (tax deductible) onshore expenses and distributed as (nearly tax-exempt) offshore profits.
The full text of the article is available at the journal’s website. Please send me an e-mail in case you are interested but your institution does not provide access to the journal.
This is a slightly adapted crosspost from the osconjunction blog.
(leonhard)
Standardization is one of – if not the – most important means of governance across borders and many articles on these blog deal with different aspects of standardization. But also beyond this blog there seems to be a growing scholarly interest in standardization, which is evidenced by the current issue of Organization Studies. Edited by Nils Brunsson, Andreas Rasche and David Seidl, the special issue on “The Dynamics of Standardization” features a series of very interesting studies, addressing issues from ISO certification over investment standards to corporate social responsibility.
And I am very happy that fellow guest blogger Sebastian Botzem and myself were able to contribute a paper to this special issue, entitled “Standardization Cycles: A Process Perspective on the Formation and Diffusion of Transnational Standards“. The abstract reads as follows:
Standards are receiving increasing attention, especially at the transnational level where standardization aims at coherence and social ordering beyond the nation-state. However, many attempts to bring about uniformity via formalized standards fail. To understand better how such rules successfully span national and organizational boundaries over time, we compare two cases of standardization in international business. Both Windows desktop software and International Accounting Standards demonstrate the need for a process perspective to understand and explain social ordering through standards. Long-lasting standardization processes require conceptualizing how different sequences of transnational standardization relate to each other. We find that at the core of such recursive cycles is the interplay of input and output legitimacy.
A pre-print version of the article is available at SSRN.
(leonhard)
Together with our recent guest blogger Sebastian Botzem from the Social Science Research Center in Berlin I prepared a piece for this year’s EGOS Colloquium, which is taking place in wonderful Barcelona. In the sub-theme titled “The social dynamics of standardization” we are presenting our paper “The Rule of Standards: Codifying Power in the Transnational Arena” (PDF), in which we try a relatively unorthodox comparison: We contrast the case of Microsoft Windows as a technological market standard with non-technological and negotiated accounting standards in the realm of the International Accounting Standards Board (IASB).
Not least to our own surprise, both examples of standardization show many similarities that allow drawing conclusions for transnational governance by standard setting in general. Among these are the following:
- Due to coordination effects, in both cases an increase in the total number of adopters paves the way for – though not guaranteeing – one dominating standard.
- While having been developed differently (market competition vs. political negotiation), in both cases growing standard diffusion reduced the need for participatory or inclusive modes of standard-setting (see the figure below).
- Finally and again observable in both cases, growing adoption can trigger what we call the dialectics of power in standardization: The successful establishment of a standard redistributes benefits and power among affected actors and feeds back into the standard formation process.
But aside from these conclusions, the paper may also illustrate why gathering seemingly very different empirical fields under the common umbrella of “governance across borders” in this blog might make sense after all.
(leonhard)
governancexborders.com 