Global Business Environment: Managing Financialized Firms Report

This report provides a comprehensive analysis of the global business environment, exploring the concept of financialization and its impact on modern firms. It delves into the context of financialized economies, examining topics such as shareholder value, agency problems, and the influence of financial crises and economic cycles. The report analyzes various articles, including those on bankers' pay, positional critique, the halo effect, and financial innovation, providing insights into management strategies and challenges. Furthermore, it includes a case study on managing financialized firms, specifically addressing shareholder value and agency problems within the context of the Oman Arab Bank. The report aims to provide a detailed understanding of the complexities of the global business landscape and the challenges faced by firms in a financialized environment.

Running head : GLOBAL BUSINESS ENVIRONMENT
GLOBAL BUSINESS ENVIRONMENT
Name of the Student
Name of the University
Author Note

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Table of Contents
Question 1........................................................................................................................................2
Topic 1: Financialized economy context of modern firms..........................................................2
Article 1: General Introduction: Financialization, Coupon Pool and Conjuncture.....................2
Article 2: The Impact of Financialization on Management and Employment Outcome.............2
Topic 2: Managing Financialised Firms: shareholder value and agency problem......................3
Article 1: Regulating bankers’ pay..............................................................................................3
Article 2: Against agency: a positional critique..........................................................................4
Topic 3: The halo effect, narratives and cultural economy approach to management................5
Article 1: Opinion the Short View Story stocks tell tall tales......................................................5
Article 2: ‘Dreaming with BRICs’..............................................................................................6
Topic 4: Financial crisis, financial cycles and managing under uncertainty...............................7
Article 1: Re-conceptualizing financial innovation: frame, conjuncture and bricolage..............7
Article 2:84th Annual Report 1 April 2013–31 March 2014......................................................8
Question 2........................................................................................................................................9
Managing Financialized Firms: shareholder value and agency problem........................................9
Conclusion:....................................................................................................................................14
References......................................................................................................................................15
Appendix........................................................................................................................................17

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Question 1
Topic 1: Financialized economy context of modern firms
Article 1: General Introduction: Financialization, Coupon Pool and Conjuncture
Analysis
The given article on General Introduction aims to find a pattern which justifies the use of
the term financialization. The paper centers around two primary questions which are the
meaning of the term financialization and how does it impact on the present day capitalism. It is
an analytic article because the paper has proposed a contractual understanding of financialization
in a pool frame. The paper has also throws light on a descriptive account of how finance is
important in the modern day capitalism by making relevant use of data and review of literature.
Findings
The paper has provided a descriptive answer to the question of the role of the financial
markets and their contribution to the securitization of funds of the mass population which often
result in economic insecurity. However, the answers are not fixed because the understanding of
the author as well as the conjuncture keeps changing (Erturk et al. 2008). The review of research
into the varied concepts of financialization reflected that the fragmentation of knowledge’s in
finance is quite irrelevant to the cultural economists.
It also found that the durable concept of financialization is not relevant and that it is
reflected by a wide variety of factors and keeps revolving.

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Article 2: The Impact of Financialization on Management and Employment Outcome
Analysis
The paper has aimed to throw light on the primary models of finance with respect to the
business domain and their emergence. It also studies how the new forms of capitalism in finance
have become increasingly important and the effect of the new financial intermediaries like the
private equity on the outcomes of employment and company management.
Using relevant literature and data , the paper has thrown light on the understanding of the
situations in a firm that are impacted upon by the financial conditions and how these situations
lead to problems related to employees (Batt and Eileen 2013)
Findings
The findings are based on the portrayal of productive and financial strategies for the
profit earning mechanism of the firm. It states that a better understanding of the given strategies
shall help in the determination of the various sources from which a firm can earn which are:
Buybacks of stock
Selling off the stock for short term gains.
With respect to the employment conditions, it has been found that the sharp rise in the motto
of pay for managers, the manager’s behaviour had become increasingly stringent.

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Topic 2: Managing Financialized Firms: shareholder value and agency problem
Article 1: Regulating bankers’ pay
Analysis
The paper has made three primary contributions to the understanding of how the
structures of bank compensations are an incentive for the various employees to induce in risk
taking and if there is a need to restructure the reforms. The paper revolves around understanding
the fact that the how the pay packages are focused towards short term results and how the
employees like to receive a share of the profits with respect to the risks they undertake for the
firm.
The paper has also researched upon the corporate governance reforms which aims to
align the pay arrangements did not remove the identified problem of employees demanding a
share in the profit (Bebchuk and Spamann 2009). A case for the importance of bank`s executive
pay regulation as a part of financial regulation has been made.
Findings
The given paper has identified certain factors which tend to motivate the bankers to take
risks.
This paper has identified some key factors that have provided bank executives with excessive
incentives to take risks. It has also shown that these factors are still present and that corporate
governance reforms aimed at tightening the link between compensation structures and the
interest of the shareholders will not be able to eliminate them.

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Hence, if the employees are to be motivated then they need to be provided incentives to
carry out the risk taking activities of the enterprise.
Article 2: Against agency: a positional critique
Analysis
The paper has made use of the changing theoretical and historical framework, to analyze
the management pay and claims of the investors and thereby make a statement about the
functionalist approach of agency in order to develop the explanation of rewards. A contrast
between the pre 1940 era and the post 1980 era has been made to discuss the important questions
about the reward and position. An idea of positional rewards has been discussed in the second
part arguing that both big as well as small firms using their position in order to skim the values.
Findings
The paper presents various arguments and empirics on value skimming and value surfing.
It states that the value skimming is generally a representation of old and new elites while the
surfing represents the common dependence of most of the households post financialization on
changing price of assets and shares (Erturk et al. 2007). The ideas about the different forms of
capturing of values and the positions are very important as they highlight the condition of the
present day economy.
Topic 3: The halo effect, narratives and cultural economy approach to management
Article 1: Opinion the Short View Story stocks tell tall tales
Analysis

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The Wall Street broking is based on the idea of narrating incidents as stories in order to
make the appropriate sales of stocks. The story stocks can be described as stocks which grow
irrespective of the economic cycle. Currently there are 33 stocks with such a tag. Earlier there
were 25 such stocks whereby a few dotcoms met with the S& P conditions.
If the vision is broadened to the top 1000 the there are 84 such stocks. The most
surprising aspect of the given scenario is that people buy into these story stocks at an unusual
rate. There lies a concern whereby there exists risk of a backslash where the whole economy can
falter if such stocks are faced by a stronger economy (Mackintosh 2014).
Findings
The findings of this article are as follows:
People tend to buy in these story stocks.
These are the stocks which are always attractive to the consumers.
The primary finding was that certain companies like Gilead and Twitter made considerable
growth even though the economy faltered.
However, in future, such a growth is often back slashed as only a good management can
make an organization last.
Article 2: ‘Dreaming with BRICs’
Analysis
The paper makes a comprehensive study into the different aspects of the economic
progress made by the different BRICs countries; Britain, Russia, India and China (Wansleben

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2013). It finds that proper utilization of resources is being made to bring about huge
improvements in the companies.
The article determines the change concepts that are prevalent in the developing countries
and how they are being applied. The author has also discussed the strategies and framework
important for the growth of the different economies.
Findings
The primary finding of the report is based on the understanding of various components
which are being undertaken by the companies with respect to BRIC counties. The countries
make use of cultural and commercial dimensions of the process to utilize the knowledge in
innovating the practices. In addition to the innovation in modeling, macro economic analysis also
alters the classifications of the investments.
Topic 4: Financial crisis, financial cycles and managing under uncertainty
Article 1: Re-conceptualizing financial innovation: frame, conjuncture and bricolage
Analysis
The given paper aims to understand the different components of changes that take place
in an organization based the aspect of innovation. Primarily this innovation is based on the
financial structure of the firm.
The paper states that with a combination of different elements and a variety of
technologies any company can frame a suitable structure in order to function smoothly in the
markets (Engelen et al. 2010).

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Findings
The article has identified certain steps that are important to frame the financial structure
in a firm with respect to the combination of different elements in the organizational structure.
An understanding of the financial condition of markets was made through this paper and how
they can be utilized was also stated. The article aims at understanding the financial condition of
the markets and therefore brings in changes in the situation of the organization in the market.
Article 2:84th Annual Report 1 April 2013–31 March 2014
Analysis:
The annual report aims to throw light on the different roles of the banks and how the
given role which has been held on since decades is being revised due to the changes in the
financial systems worldwide. Through various financial data and review of literature the paper
has made an understanding of the different procedures adopted by the banks to trade and ensure
the availability of the different resources (Basel 2014). The paper has also made an
understanding of the way the financial condition of the market in which the banks function in
and the economic situations help to determine the processes.
Findings:
The paper helps in determination of the standing of a company in the financial as well as
the consumer market. The report reflects upon the changes that have taken place in the economy
and the changes which the different organizations in order to cope up with the given changes.

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Question 2
Managing Financialized Firms: shareholder value and agency problem
Introduction
As stated by Aalbers (2017), financialization can be define as the increase in influence
and size of a financial sector within a country. Financialization affects the overall industry as it
increases the growth of the financial sector, which may affect the other sectors in the industry
both positively and negatively. The main concern of this literature is separation of ownership,
control of capital and perspective of shareholder value. Due to the changes in the modern
entrepreneurial structure of organizations, the financial decisions within the firms and capitals
are shared with other shareholders. The conflicting interest of managers and the shareholders is
an existing problem even within the Oman Arab bank.
Managers and Shareholders executive pay
As stated by Clarke and Gholamshahi (2016), the agency difference between the
managers and the shareholders could be mitigated by aligning their interest. This can be done by
developing managerial labor market that are effective and by paying for the performance
contracts. The data analyzed in the case of Oman Arab Bank it can be seen that the managerial
payments have reached extraordinary levels if we consider the historical data (Oman-
arabbank.com 2018). The reformation of international governance changed their focus to self-
enrichment of managers after few corporate scandals like WorldCom and Enron due to the
immense public outcry. The Oman Arab Bank has adopted theoretical literature, which
examines both the economic and legal anticipations. When considering the argument of agency

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problems, the bank offers both political and historical perspective by keeping their focus on
matching the social context with organizations public nature. Therefore, in modern
organizational situation, the shareholders are considered to be reinters as they are completely
detached from the assets of the bank.
On the contrary, as opined by Lazonick (2017), the objective of the managers should be
maximization of asset value of the organization in the stock market in firms owned by the
stakeholders. The mangers in the Oman Arab Bank do not have ownership over the shares within
the organization. However, they control all the shares of the bank. This has given rise to
incentive problems between the principle owners and the managers within the bank. The
company theory has shifted the power to the managers, which has also been accepted by the
post- Keynesian economics theory. However, according to the literature of property rights post-
Keynesian economics does not include the incentive problems. Even though, the managerial
board has indicated that there has been steady growth in the market share and capital but the
conflict between the managerial class and the capitalist class regarding the maximization of
reinter is still very much present with the organization.
Value maximizing manager from profit maximizing entrepreneur
The two main issues in the company’s financials have been identified by analyzing the
case of Oman Arab bank and they are capital control and separation of ownership. This is linked
with the value perspective of the shareholders. The company has a diversified portfolio of
assets, which are owned by diffused shareholders within the organization that decreases the
exceptional uncertainty of bank’s performance. This clearly highlights the managers cannot be
disciplined by the capital market.

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On the other hand, as stated by Oman-arabbank.com (2018), previous post settlements
are the reason for having the subjected the managers to discipline in Oman Arab Bank. This has
guaranteed long-term labor rental wealth. In addition to that, managerial labor markets have
been used for primarily disciplining the managers, which has been able to explain the viability of
the company’s diffused ownership of securities. By accepting the same concept the Oman Arab
Bank has been focusing on providing a long-term view on the agency issues by providing
arguments that corporate control can be maintained by implementing secular restructuring of the
capitalism in America. Therefore, the bank had made sure that economic efficiency could be
maintained (Palley 2016). This is crucial for sustainability of the capital market along with the
survival of the capital society. At the same time, this will play a major role in restructuring of the
overall economy, which is ensured by emergence of incompetent companies in the market. In
order to make efficient interventions in the capital market, the bank efficiently monitors the
leveraged buyouts. Thus, there is a development of contractual relationship between owners,
production factors and managers by being within the limits of the efficient assets and managerial
markets.
Value Matrix of Shareholders: Risk Adjusted ROC and Added Economic Value
Agency crisis is an issue, which has to be solved for maintaining the financial stability of
the organization. Therefore, various financial economists have developed a theory, which
considers the product and the capital markets as a viable unit of economy. The data on Oman
Arab Bank states that it is important to have cost recovery in the product market and in the
capital market, there are certain risk factors, which has recognized the return on equity as it
attains priority in performance (Oman-arabbank.com 2018). Therefore, in order to survive the
company is still focused competition in the product market as managers are still gathering risk