S&P 500 companies are distributing an increased share of cash resources to shareholders relative to other stakeholder groups. Jensen (1986) argued that in a mature corporate sector, where growth is difficult to find, managers will tend to invest in projects where the net present value (NPV) of future cash-flow from those investments is negative and, as such, managerial calculations are working against the interests of investors. Jensen (1986) suggests that a combination of incentives, rules and contractual obligations could be employed to force managers into disbursing cash rather than reinvesting in projects with a low return. Jensen (1986) also indicates that financing corporate activities with fixed interest securities forces the alignment of investor and managerial financial interests thereby reducing the scope for managerial discretion, for example, over dividend payments. In the early 1990s the leveraged buy-out (LBO) was a less common form of restructuring in the US and Jensen more pessimistic about the degree to which capital-market controls would force a reallocation of capital from low to high return economy activity. In retrospect, Lazonic and O’Sullivan (2000) reveal that the share of profit distributed to shareholders increased throughout the 1990s and their argument is that this reflects a reorientation of corporate governance towards the interests of shareholders. Further, they argue that this has the potential to undermine US competitiveness because downsize and distribute policies are prioritized ahead of investing in innovation.

Erturk, Froud, Solari, and Williams (2005) questioned the physical evidence on corporate downsizing in the US and Froud, Johal, Leaver, and Williams (2006) are cautious about the extent to which an increased share of earnings before interest and tax (EBIT) was distributed to both debt and equity investors. Cutler (2004) observed that Jensen, Lazonic and O’Sullivan share a preoccupation with connecting corporate governance and economic transformation. Jensen was concerned with how capital market control and incentives transform economic performance by reallocating capital from low- to high-return investment opportunities. Lazonic and O’Sullivan resist the re-orientation of corporate governance implied by a shareholder-value led economy because, they argue, it promotes downsize and distribute at the expense of innovation, competitiveness, and return on capital.

In this paper our concern is not with whether the capital market acts to discipline under-performance by blocking low-return investments to force restructuring or whether a re-orientation of corporate governance promotes downsize and distribute at the expense of innovation and national competitiveness. Rather we construct a financialized account of the changing pattern of cash distribution to stakeholders in the US corporate sector. As the corporate sector interacts with the capital market to finance restructuring these engagements and associated constellation of financial transactions are recorded at fair or market value (MV). The Finance Accounting Standards Board (FASB), in the US, progressively promoted the use of fair value or mark to market accounting (SFAS 157) to inform investors and external creditors of corporate performance.

The process of fair value or mark to market accounting is not simply a technical issue about the quality of input assumptions used to adjust historic into market values in the balance sheet and support valuation metrics. In financialized accounts fair value blends the product of capital market wealth accumulation with current values in corporate sector financial statements. Market values generally run ahead of cash earnings because valuation metrics bring forward the value of future income streams and growth expectations to estimate market value. As market value is absorbed into corporate sector balance sheets the pattern of cash distribution between stakeholders changes because extra cash resources are needed to finance share buy-backs which, in turn, helps to realign capitalization with cash earnings (Andersson, Haslam, Lee, and Tsitisianis, 2007).

In the first section of this paper, we revisit Jensen’s position on the agency problem and how capital market control and managerial incentives are required to redirect cash resources to more productive enterprise. Lazonic and O’Sullivan (2000) reflecting on the 1990s observe that the share of profit distributed to shareholders increased. This set the US corporate sector on a trajectory of downsize and distribute at the expense of retaining and investing cash resources in innovation and productive renewal. In contrast, we develop a financialized account of the changed pattern of cash distribution to stakeholders. Our argument is that an active market for corporate control combined with fair value accounting forces balance sheet capitalization ahead of cash earnings and thereby puts value at risk. To contain value at risk managers must use additional cash resources to finance share buy-backs and reduce balance sheet capitalization.

In the following section, we construct a macro-account of cash deployment in, firms that remained in the S&P 500 list from 1990 to 2005. The account reveals that more corporate cash is being distributed to equity holders, as cash dividends, share buy-backs and cash acquisitions, relative to other stakeholder groups such as government income tax, debt financing via net interest charges, and capital expenditure in the form of tangible asset suppliers. Significantly this re-orientation of cash to shareholders has been driven by share buy-backs which, we previously argued, were required to correct metrics used to gauge value at risk.

In the third section, we use firm level cases to reveal a productionist–financialized spectrum. At one end of the scale we have productionist firms, predominantly self-financing, not actively involved in capital market financing and restructuring and employing a larger share of cash to finance tangible asset renewal relative to equity in the form of cash acquisitions, share-buybacks and dividends. At the other end of the scale we have financialized firms which rely more heavily on external financing, are actively engaged in corporate-capital market restructuring, and distribute more cash to equity relative to tangible asset renewal.

In the concluding section, we argue that the general trend to Fair value reporting will progressively blend the product of wealth accumulation into corporate sector financial statements. This has the potential to modify the balance of stakeholder claims in corporate cash. In financialized accounts the corporate sector will struggle to reconcile the financial tension that results from mixing current earnings with wealth accumulation. As firms, industries, and corporate sectors absorb the product of wealth accumulation the pattern of corporate cash distributed to stakeholders will be modified to align financial metrics and contain value at risk.