Rethinking Finance in the Face of New Challenges: Volume 15

This chapter considers financial instability as a phenomenon endogenous to the functioning of capitalism. Consequently, it seeks to identify the main sources and different forms of the latter in financialised capitalism. According to Keynes, capital assets prices are conceived as the expression of financial conventions. It is, therefore, important to distinguish between the returns expected by company directors, bankers, holders of equity titles, risk-takers and, in contrast, risk-averse holders of debt securities. Minsky enriches the analysis by attributing a decisive role to the leverage effect, at the origin of an accumulation of financial weaknesses in the balance sheets of non-financial agents during the expansion phases preceding financial crises. Regulation theory leads to the introduction of a distinction between the financial accelerator and the leverage effect. The first establishes a procyclical relationship at the macroeconomic level between the price of capital assets and the debt ratio of non-financial agents; the second acts at the microeconomic level through shareholder corporate governance, which determines the institutional conditions inciting firm directors to integrate shareholder expectations into their return forecasts. The empirical analysis identifies three forms of financial instability in financialised capitalism: the long-term financial cycle governed by the debt ratio of non-financial agents; the business cycle governed by the impact of stock prices on investment; and the short-term or even very short-term expected return revisions of financial actors. Its originality is to show that these three forms of instability acquire different characteristics depending on the national economy considered.

Although the American monetary authorities seemed determined to carry out the normalisation of their policy, the severe downturn of the stock markets at the end of 2018 and the injunctions of Donald Trump led them to a complete about-face, concretised by reductions in the key rate starting at the end of July 2019. This surrender in front of market blackmail confirms that the unconventional monetary policies implemented after the 2008 crisis have plunged the asset-based economy into a black hole, from which it will not be able to escape without deeply reforming itself.

The purpose of this chapter is to study corporate strategies and their evolution over the last few decades (1970–2020). The strategic issues are examined through the lens of the following activities: portfolio scope (diversification versus specialisation), structuring (integration versus outsourcing) and financing, debt-related policies (leverage) and equity (dilution versus relution). The financialisation of corporate strategies is evident at various levels (specialisation, outsourcing, leverage, relution) to the detriment of the other stakeholders concerned. It weakens the latter and calls for stronger regulation of the financial markets (particularly share buyback operations).

Financialisation being but the end product of a complex process, countering it is not a question of modifying individual behaviour but of changing the law. In sharecropping, the standard contract between landowner and labourer gets shared only based on what has actually been produced: risk is being shared along the terms of the contract guaranteeing to both parties a share of the produce, not a fixed quantity of it. Imbalance creeps in when rent is being paid without being a true share of wealth having been created, in what is nowadays called ‘consumer credit’: when interest is charged and paid from wealth that has not been generated through combining human labour with the resources lent as an investment but by the borrower mortgaging wages yet to come. Got historically added to the dysfunction of consumer lending, speculation with the meaning traditionally assigned to it in finance of ‘wagers on the rise or fall of the price of financial products’. Speculation doesn't add any economic value but shifts only amounts of money between bettors, generating a number of risks. Counterparty risk: the loser possibly defaulting, triggering then a damaging chain reaction of defaults. Moral hazard risk: bettors attempt to push the market in the direction favouring their bet. Systemic risk: bettors take advantage of the well-established fact that should they lose, the public sector will act as a saviour of last resort, bailing them out. This all can be redressed by law, and by law only.

In the fifteenth and the seventeenth centuries, the administrative organisation of the French state was based on the offices. Significant modifications took place during this period, from the transformation of offices as lifetime ownership in 1467 to the constitution of the casual parties in 1522 and to the ratification of the edict of annual right in 1604. Because of the state's need for financing, in particular the wars in which it is involved, the nature of offices is changed during that period of time. One of the most important impacts of those modifications is the occurrence of a commodification process of the state apparatuses. This paper highlights also the fact that the state's finances are being financialised along with the development of the state. The French case is thus characterised by a unique symbiotic relationship between the commodification of state apparatuses, the financialisation of the state's finances, and the institutional changes. This relationship is grasped through the theoretical framework of the regulation school of thoughts and is analysed based on archival work.

This paper analyses the construction of value under the context of radical uncertainty (Keynes, 1936; Orléan, 1987) in the financialised real estate sector in France. It is based on a participant observation of valuation practices in an international real estate consulting firm and 26 in-depth interviews with professionals of the sector. We show that these practices rely on an institutional architecture that participates in the consolidation and legitimisation of the accumulation activity of asset managers and thus in the feeding of real estate bubbles in the hearts of large metropolises. Completing the conventionalist approach of value (Orléan, 2011) by focussing on the functioning of the organisations involved in the valuation process, I show that the determination of value is less the result of the emergence and autonomisation of a collective belief through market relationships than the product of power relationships between agents integrated in hierarchical professional organisations and in a specific legal framework.

Accounting is part of a cosmology, even an anthropology, which goes beyond the simple input/output operation. This is why its object is in the deepest sense a political term: accounting reports on and informs the relations that a society creates. As the true working heart of a company and of the State, it constitutes, however, a kind of a black box, the design of which would be reserved for certain specialists claiming to be of a scientific neutrality that conceals very political choices. From a normative point of view, accounting standardisation is an instrument of corporate or state governance insofar as it accounts for what is valued: as such, it reflects what matters in a society, not only in the strictly economic sense but also more generally in the social and political sense. As far as the company is concerned, we can conceive of it as an entity owned by the people who work there while holding a mandate of the company as a whole as long as its activity fits into the horizon it sets out. In this sense, it aims to maintain the capital (human, natural and financial) that constitutes it and to meet social needs. As for the State, re-envisioned from the perspective of the common, it becomes the object of institutions thoroughly invested by citizen control at all levels, from a perspective of complete federalism in which political and economic needs are coordinated under the principle of subsidiarity.

Public services and activities delegated to non-profit actors are increasingly subject to evaluation. This practice is not new. Seminal papers document the emergence of such practices in Anglo-Saxon countries in the 1920s. Methods are now converging on measuring the (social) impact, which often involve broadening the spectrum of components evaluated. The flexible and unifying term ‘impact’ is now adopted in public services, education, health and research, as well as in the social economy and finance sectors through impact investing. This is based on extending the spirit of an efficient State, from the expansion of service productivity measures in the 1960s to the expansion of social assessment practices of CSR. To ensure impact measurement, action programmes (both public and private) are now split into a sum of (small) projects whose common denominator is that they are precisely circumscribed to ensure rigorous evaluation. The social impact can be assimilated with a new mode of regulation, the aim of which is to reconcile the requirements of these different actors in evaluative practice, and to almost magically (i.e., by overlooking the intense social work required) align the search for economic efficiency and the pursuit of a social purpose. In this respect, social impact bonds are a heuristic illustration of the trend, bringing together the interests of private funders, public authorities and social economy actors in a single contract, with the ‘evaluator’ playing a decisive role in coordinating this new alliance.

This chapter intends to seize the different economic and financial dimensions of the crowdfunding and shows how this latter contributes to transforming donations through its financialisation. Here, Polanyi's lessons on reciprocity and Keynes's lessons on monetary economics and conventions are enlightening. Indeed, by setting up an intermediary or by putting projects in competition, platforms develop the use of conventions linked to market coordination. By encouraging the monetarisation of expenses and projects and the commodification of donation activities, the crowdfunding not only becomes a tool of financialisation but also modifies social relations. Moreover, it creates new niches of financial exclusion, particularly for projects with a significant social or environmental dimension, and tends to make the financing of certain projects rely on savings rather than on monetary creation. Far from being the alternative and a counter-model to traditional finance, crowdfunding actually reinforces financialisation by introducing a new financial intermediary and contributes to its expansion in hybrid forms.

The purpose of this chapter is to synthesise research on the concept of sustainable development in finance. Indeed, since the mid-1990s under the leadership of the United Nations and various non-governmental organisations, sustainable development has experienced an unprecedented boom that affects many areas. This synthesis is organised around two main themes: sustainable finance and fintech/digitalisation.

The academic world is too often disconnected with the needs and realities of the economy and society. It has not sufficiently drawn lessons from the 2008 financial crisis, and repeatedly demonstrates great restraint when faced with financial scandals. Its responsibility is, however, to analyze these problems and to argue objectively.

To make sure academic freedom is not merely empty words or a pleasant principle inscribed on university pediments, it must be exercised and practiced regularly by faculty members. The field of finance addresses the issue of (asset) prices but does not transmit values. Money is presented implicitly or explicitly as an end rather than a means.

This chapter enters the debate of knowing if the financial regulations should be overhauled in the continuity of behavioural finance developments. The lack of precision in the behavioural finance conclusions could lead to misleading new financial regulations adoption. Furthermore, through an analysis of the literature, we show that behavioural finance hypothesis building converges to the neoclassical one's, which contradicts the idea to overhaul financial regulations. We also highlight the fact that universal heuristics and biases contribute to the financial regulations revision proposal. Finally, we analyse some of the propositions put forward by advocates of behavioural finance and the limits thereof.

The thinking of the philosopher Baruch Spinoza is gradually entering the field of social science. In this paper, we are particularly interested in applying his theory of affects to the analysis of passionate collective behaviours at work in the field of financial markets. The general hypothesis that underpins our work is the idea that, in a context of radical uncertainty about the future, the succession of common affect regimes translates into passionate sequences that determine investor behaviour and produce market dynamics. Using an analysis of the stock market cycles of Taffler, Bellotti, and Agarwal (2018), Taffler, Agarwal, and Wang (2019), we show that the Spinozist concept of common affects can help us to understand the mechanisms in the production of collective emotion and to account for the speculative dynamics at the origin of the great financial bubbles.

This article considers the contribution of social science in the teaching of finance based on personal teaching experience in the fields of both market finance and corporate finance. We show how adopting a social science lens can help to change teaching practice in the field. First, due to the social science research epistemology, we apply an inductive method based on observations of real facts, e.g., a financial scandal, a crisis, evaluation of a product, the bank credit granting process. Second, we portray objectified finance as it actually works. Third, we focus on deconstruction to offer a fresh take on the world of finance with the help of critical analysis. Depending on the finance course and the target audience, this can be done through the lens of techniques, financial organisation or an analysis of institutions. The paper offers new ideas to rejuvenate finance education. More specifically, by teaching finance through the lens of social science, we can abandon the monolithic and dogmatic framework of finance theory and instead propose a pluralism of theoretical frameworks and a continuum of complementary interpretations. In addition to developing students' open-mindedness in the field of finance, the inductive approach starting from by how finance actually works enriches the material provided by ‘seminal’ finance books that are mostly confined to mainstream theory. Social science is a developing and rich area of research, but, to our knowledge, its implications for finance teaching have yet to be analysed.