Accounting for the financialized UK and US national business model

Abstract

The term ???business model??? (BM) is generally used to describe the possibilities of transforming corporate activities and business functions (Osterwalder et al,2005 and Magretta,2002) In this paper we argue that our understanding of what constitutes a BM can be reworked to generate a useful organizing framework to investigate the nature of national economic development and transformation. Our argument is that national business models are subtended within a broad econo???sphere where they evolve and adapt to information arising out of stakeholder interactions. These interactions congeal into reported financial numbers that are represented as GDP flow (income and surplus) and Balance Sheet accumulations (assets and liabilities outstanding). In this paper we employ financial data from national accounts to specifically describe how the US and UK national business models have financialized. We observe that balance sheet capitalization has inflated ahead of earnings and surplus. Our argument is that the capitalization of a national business model is not simply the mathematical product of discounting corporate cash earnings. The process of on???going capitalization is also conditioned by variable institutional sector characteristics where financial innovation is possible and, within credit based economies, goodwill and holding gains arising out of asset inflation also provide collateral for further ongoing recapitalizations. In financialized national business models the system of accounting takes on added analytical significance because it ???transmits rather than contains??? and ???amplifies rather than dampens??? adverse financial disturbance as capitalizations are recalibrated up or down

Towards a Marxist Theory of Financialized Capitalism

“…Turning now to examine the picture of the firm in more detail, financialisation involves a turn towards market-based financing and increased engagement in financial strategies of accumulation, through, for example, buybacks of firms' own shares (Lazonick 2012), securitization of assets (Baud and Durand 2012), financial intermediation, or investment in external securities. This has translated into the growth of market capitalization ahead of both GDP growth and earning capacity (Andersson et al 2014). The ensuing asset inflation allows holding gains to be extracted that can then form the basis for additional collateral and further leverage.…”

Stress Testing International Financial Reporting Standards (IFRS): Accounting for Stability and the Public Good in a Financialized World

“…Many acquiring companies have used these areas of discretion to allocate a high percentage of the purchase consideration to goodwill in order to reduce the future amortisation charge associated with the identified intangible assets purchased as part of the transaction (KPMG, 2010:12-13) Thus the asset side of a firm's balance sheets contains accumulating market values but the health risk is that they can become impaired and the system of double entry book-keeping will transmit any financial disturbance to maintain assets ≡ liabilities. This aggregate identity disguises the fact that line items on the asset / liability side of a balance sheet may (or may not) have an equivalent capacity to absorb financial disturbance (Andersson, et al 2014).…”

Islamic (Partner) Accounting and its Comparison with International Financial Accounting Standards (IFRS)

“…However, differences in national and regional accounting systems persist and do not merely reflect a diversity of accounting policy views but reveal deeper structural disparities rooted down in legal, financial and social systems. The accounting models can now be listed as British American, Continental, South American (Latin American), Islamic (partner) and IFRS accounting, of which the Islamic (partner) model seems to be the most different from all the others, yet, at the same time, the least studied [6,7].…”