With all their multiplicity and their tensions and contradictions, these methods of valuation establish theoretical power relations in the distribution of money that appear as technical presuppositions of calculation and financial reasoning. Defining companies as something that has a “value” represents them as a source of appropriable money for the investor. The assertion that prices reveal the truth of this value in efficient markets reinforces the idea that this value indeed exists and endows its supposed reality with political legitimacy. The value that prices supposedly reflect is considered accurate in the sense that it results from the application of correct methods. And it is considered politically desirable because it is the signal produced by efficient markets that leads to a socially optimal allocation of resources. In this imaginary, the state is given the role of supporter of the figure of the investor in order to determine the bottom line of what can be valued and in order to secure a minimum revenue for himfor the sole reason that he owns money.
The manuals of financial analysis quoted earlier stress the priority that valuation must give to the figure of the investor: “Modern finance theory and practice is based on the basic principle that business managers should act so as to maximise shareholder value, i.e., the value of equity shares of the company.” As many studies have shown, such practices have contributed to the transformation of listed companies’ wage relations and investment strategies in the last decades. All the participants in the activity of the company that is evaluated—such as the company’s employees, its business partners, the state as tax collector and service provider, the social spaces where the company operates, and the environment in general—are considered only potential sources of costs or of profit. The analyses produced by professionals—for instance, the reports produced by financial analysts—often come with explicit recommendations addressed to the company’s management about reducing labor costs or changing suppliers in order to increase the revenue available for the investors. This understanding of shareholder value has also been used by the Chinese central government to transform state-owned enterprises in order to list them on stock exchanges and reorganize their control without privatizing them. The way in which the methods of valuation and investment produce a powerful figure of the investor can create different social hierarchies, as it intersects with other power relations.
The power relation between the figure of the investor and the rest of the participants in the company’s activity is also temporal. Fundamental valuation is based in the present, at the moment when cash flows and discount rates are assessed, and has the midterm future as its horizon. As a result of discounting, income that is closer in time has a higher value than income that is to be received later, so costs and income that would occur beyond ten to fifteen years in the future would have an almost inexistent “present value.” This creates hierarchies among the different moments in which activities in the company are expected to occur and hence among the actors they involve and disregards the long-term effects of valuation altogether.
The notion of the risk-free rate of return establishes the power of the investor over the rest of society through the power of the state. It asserts that the investor, simply because he owns money, is entitled to revenue obtained by taxing the rest of the population. Looking much like a feudal entitlement, it breaks with the liberal definition of a free market participant. This entitlement, however, actually establishes the freedom of the investor, who can always exit a risky investment if it does not pay enough of a risk premium. The notion presupposes that this return, unlike other data used in valuation, escapes the laws of probabilities. Using an absolutist notion of state sovereignty, it endows the rights of the investor with a political and ontological status that does not apply to the rest of society. The standard of all financial value is thus founded on the sovereignty of the state at the service of the investor.
This notion of risk-free return is then used to establish a hierarchy among all social activities according to whether they appear stable and committed to prioritizing the figure of the investor over other participants, like workers, consumers, citizens in general, or the environment. This hierarchy is partly expressed and institutionalized by rating agencies and works as not only the technical justification but also the moral and political justifications for the exclusion of the most impoverished populations from the distribution of money managed by the financial industry. The notion implies a certain historical myopia, since all the states included in the definition of this category today have defaulted on their debts more or less recently. This myopia erases the problematization of the historical processes whereby some particular states marked by factors such as colonization, world wars, and the Cold War—occupy the top of the hierarchy at the service of the figure of the investor. This hierarchy often reinforces the difficulties of the poorest states and of those activities that attempt to access the money managed by the financial industry. Financial companies will demand higher returns from, and create more instability by speculating on, sovereign bonds of the states with jurisdiction in the territories where poorer populations live. This weakens the capacity of these states to provide for public services where they are most needed. Activities that are deemed too risky or not even rated by rating agencies may simply be totally excluded from investment. As we will see in the following chapters, stock valuation must thus be understood in relation to the valuation of all other assets, with which each listed company is compared and put into competition.
Finally, as we have seen, the notion of market efficiency gives price political legitimacy as the socially optimal representation of a company’s value. The CIIA manual thus states: “There is a substantial body of evidence to indicate that share prices in well developed thought leaders of the financial markets are highly correlated with the future stream of cash flows and the risk of the cash flows.” It justifies focusing on shareholder value by saying that, besides benefiting the company and its customers and employees.
In this financial imaginary, the truth of value thus obtained is a valid measure for the investor, but it is also the signal that orients economic activity toward a socially optimal allocation of resources. Once all the information has been reflected in the price, no individual investor can claim to find a better valuation than that of the market. The price can exercise its discipline, which is at the same time technical and political: it is supposed to indicate the true value of social activities, which all participants must then accept as a guide for their investment, and it is supposed to indicate the fair value of these activities; i.e., it is supposed to indicate how worthy they are of investment from the point of view of society as a whole.
According to this financial theory, valuation is the deed of independent investors, whose interests are best defined by the formulas and lines of reasoning of the theory itself. This allows for the realization of market efficiency—and therefore for the socially optimal allocation of resources. This is also, in general terms, the political aim with which financial regulation justifies the role it assigns to the financial industry and its methods. Valuation and investment methods, like the determination of a discount rate or the constitution of an investment portfolio by replicating an index, define value in three different ways that are interdependent and partly contradictory. But this multiplicity reproduces a theoretical relation of power organized by the relations among the concepts of the investor, the efficient market, and value. Navigating the professional rules of their workplace, employees with different tasks of financial valuation and investment mobilize and combine the three definitions of value differently. They enact various figures of the investor, and in different ways, they problematize their professional space, the financial industry, as the place where market efficiency occurs. It is through this everyday application of financial methods of valuation and investment that the financial industry collects, produces, and distributes money, contributing to produce social hierarchies worldwide.
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