The paper “Financialization as strategy: Accounting for inter-organizational value creation in the European real estate industry”, co-authored with Sebastian Botzem and published in Accounting, Organizations and Society, investigates an in-depth case study of a European real estate firm and its transnational relations with professional service firms, which together enable and drive a financialized business model. The key findings of our study can be summarized as follows:
- Financialized business models, which are based upon and tailor-made to suit financial market logics, emerge in tight collaboration between real estate firms and professional service firms such as auditors, (investment) banks, notaries, attorneys and realtors, each of which profits from rising real estate prices. Because rising prices allow revaluating and refinancing earlier assets acquisitions, providing the firm with additional funds for further acquisitions without the need to selling real estate.
- Management and structuring fees are key for the functioning and also the danger of financialized business models, which depend on rising price levels in real estate. Most of the fees are paid out to the various actors involved in real estate transactions already at the time the loans are awarded. Contrary to interest payments, which are distributed over the whole loan period, management and structuring fees increase profits – and thus also bonus payments – already in the year a transaction is made.
- Fees not only allow premature distribution of unrealized profits but also transfer of profits into offshore tax havens: structuring fees are calculated as (tax deductible) onshore expenses and distributed as (nearly tax-exempt) offshore profits.
The full text of the article is available at the journal’s website. Please send me an e-mail in case you are interested but your institution does not provide access to the journal.
This is a slightly adapted crosspost from the osconjunction blog.
(leonhard)
Filed under: Financial Reporting Standards
