Sub-theme 38: Social Studies of Finance: Implications for a Financialized Economy
Call for Papers
Since the 2008 financial crisis, organization theorists have become increasingly interested in the social studies of
finance. The social studies of finance use insights from economic sociology and science and technology studies to explore
how financial markets are socially constructed through actors, norms, and material devices. Existing research within the social
studies of finance has developed a detailed understanding of the inner workings of financial markets. For example, Beunza
and Stark (2004) explored the organization of derivatives trading rooms and MacKenzie and Pardo-Guerra (2014) examined the
role of trading algorithms.
Scholars within the social studies of finance, however, still need to draw out the implications that their research has for the “big questions” (Jarzabkowski et al., 2015: p. 185) that arise around the financialized economy that has emerged over the last 40 year. We define a financialized economy as an economic system in which financial firms (e.g., banks or hedge funds) play an increasingly important role and non-financial firms increasingly focus on financial markets in their business decisions (Tomaskovic-Devey & Lin, 2011, p. 539). In what follows we outline three avenues for research that link micro-level practices to macro-level implications.
The engagement and valuation practices of shareholders
First, the social studies of finance can contribute important insights on how shareholder engagement creates pressure on corporations. For example, quantitative studies show that active and short-term investors, such as hedge funds, increase the likelihood that companies take shareholder-friendly business decisions (Cobb, 2015). However, we know little about the engagement practices through which shareholders create pressure on corporations. Similarly, quantitative studies document that securities analysts have difficulties in evaluating radical innovations of corporations (Benner, 2010). Such findings raise questions about the valuation practices of market participants that researchers could address by building on research that examines how value is socially constructed (e.g. Helgesson & Muniesa, 2013). Exploring these valuation practices could inform bigger debates about the informational efficiency of financial markets, the emergence of speculative bubbles, or shifts in valuation regimes toward more sustainability. – We thus invite contributions that address questions such as:
How do engagement practices vary across different types of investors?
How do different engagement practices create pressure on corporations?
How does financial regulation (e.g., Sarbanes-Oxley) and self-regulation (e.g., GRI) shape the valuation practices of investors?
How financial products and trading practices mitigate and create risks
Second, the social studies of finance can advance our understanding of risk in financial markets. Today’s financial markets enable investors and companies to mitigate more risks than ever before. For example, investors and companies can now buy financial products linked to the weather, terrorism, or other new “risk objects” (Smets, Jarzabkowski, Burke, & Spee, 2015). However, the increased interlinkage between different asset classes and new financial innovations also creates new risk, such as instances when high-frequency trading leads to so-called “flash crashes” in which stock prices drop substantially within seconds (Marti & Scherer, 2016). That is, secondary risks arise from using financial innovations. – Given these developments, we welcome contributions that address questions such as:
How do actors in financial markets create new risk objects?
How do companies use financial markets to deal with risks?
Do new trading practices or new financial products create new risks?
Investment practices and the growth of the financial sector
Third, the social studies of finance can expand our knowledge of how institutional investors—such as pension funds or mutual funds—invest their money. Existing research within the social studies of finance has focused mostly on the providers of financial services (banks, etc.) and intermediaries (brokers, etc.), while paying less attention to investment practices. Analyzing investment practices could provide a detailed understanding of different types of investors operate. Such an analysis could also help explain why investors in the United States spend more than $500 billion per year on financial services (Bogle, 2008) despite consistent evidence (e.g., French, 2008) that a simple buy-and-hold strategy would generate higher returns for most investors. Understanding why investors pay billions for financial services matters because these fees lead to an ever-growing financial sector. – We therefore invite contributions that address questions such as:
How do new investment practices gain legitimacy over time?
How do the investment practices of new types of investors – such as sovereign wealth funds or socially responsible investors – differ from established investment practices?
Can the social studies of finance help explain the growth of the financial sector?
- Benner, M.J. (2010): “Securities analysts and incumbent response to radical technological change: Evidence from digital photography and internet telephony.” Organization Science, 21 (1), 42–62.
- Beunza, D., & Stark, D. (2004): “Tools of the trade: The socio-technology of arbitrage in a Wall Street trading room.” Industrial and Corporate Change, 13 (2), 369–400.
- Bogle, J.C. (2008): “A question so important that it should be hard to think about anything else.” The Journal of Portfolio Management, 34 (2), 95–102.
- Cobb, J.A. (2015): “Risky business: The decline of defined benefit pensions and firms’ shifting of retirement risk.” Organization Science, 26 (5), 1332–1350.
- French, K.R. (2008): “Presidential address: The cost of active investing.” Journal of Finance, 63 (4), 1537–1573.
- Helgesson, C.-F., & Muniesa, F. (2013): “For what it’s worth: An introduction to valuation studies.” Valuation Studies, 1 (1), 1–10.
- Jarzabkowski, P., Bednarek, R., & Spee, P. (2015): Making a Market for Acts of God: The Practice of Risk Trading in the Global Reinsurance Industry. Oxford: Oxford University Press.
- MacKenzie, D., & Pardo-Guerra, J.P. (2014): “Insurgent capitalism: Island, bricolage and the re-making of finance.” Economy and Society, 43 (2), 153–182.
- Marti, E., & Scherer, A.G. (2016): “Financial regulation and social welfare: The critical contribution of management theory.” Academy of Management Review, 41 (2), 298–323.
- Philippon, T., & Reshef, A. (2012): “Wages and human capital in the U.S. finance industry: 1909–2006.” Quarterly Journal of Economics, 127 (4), 1551–1609.
- Smets, M., Jarzabkowski, P., Burke, G.T., & Spee, P. (2015): “Reinsurance trading in Lloyd’s of London: Balancing conflicting-yet-complementary logics in practice.” Academy of Management Journal, 58 (3), 932–970.
- Tomaskovic-Devey, D., & Lin, K.H. (2011): “Income dynamics, economic rents, and the financialization of the U.S. economy.” American Sociological Review, 76 (4), 538–559.