The 1980s Metrological Revolution in Finance and Its Consequences: A Quantitative and Historical Study

Friday, June 24, 2016: 2:30 PM-4:00 PM
202 Barrows (Barrows Hall)
Theo Bourgeron, University of Edinburgh, Edinburgh, United Kingdom of Great Britain and Northern Ireland
“Research in accounting has been unscientific. (…) I believe much of what is classified as accounting research is useless.”

Michael Jensen (1976) “Reflections on the State of Accounting Research”

Much has been written about the institutional, economic and ideological determinants of the 1980s financial revolution, when private equity funds replaced conglomerates in the Western industrial structure and provoked the rise of “shareholder value” corporate control. Using historical materials and a quantitative textual analysis, my paper focuses on a less documented aspect of this historical shift: the cultural determinants of the 1980s revolution, in particular the metrological struggles that made it possible, and the way these cultural factors ultimately affected money circulation.

Actors involved in the 1980s financial revolution (financial economists, consulting firms and financial analysts) devoted significant energy to influencing the way in which economic value was accounted for. Assuming that the defence of shareholders required the translation of new financial theories into new indicators, they led a strong offensive against accounting as it was defined by public or collective bodies (SEC, FASB). Not only did they attack the relevance of traditional indicators, but they also attacked public norms of value in general, defending the emergence of private accounting practices for shareholders distinct from the generally accepted methods (section I).

Their attempt was successful and my paper underlines how a new valuation culture consistent with these arguments emerged in the 1980s. Using the innovative method of quantitative textual analysis, this paper analyses the 21 most quoted articles and handbook chapters related to the valuation of private companies published between 1960 and 1999. This reveals a strong amount of opposition between traditional valuation practices described in the 1960s and 1970s, based on public norms of value (accounting, public markets and legal norms), and the new valuation practices of the 1980s and 1990s which relied on the evaluation of future cash flows through private statistical technologies (sections II and III).

As a consequence of this, the way financial actors considered money changed. Using historical references, this paper demonstrates that whilst conglomerates used to exchange shares and net earnings perspectives (using them as quasi-monies), new private funds were exclusively spending cash in the expectation of cash-flow return. Arguing that each monetary regime is significantly determined by the way money circulates between actors, my paper establishes a link between the new valuation culture of the 1980s and the monetary regime that emerged in Western countries at that time (section IV).

Thus, in addition to contributing to an empirical description of the financial cultures’ variation in the period, this paper shows how individual metrological innovations, once transformed into collective valuation cultures, can become objective macrosocial phenomena because of their influence on money circulation. Given the interdependence between private financial cultures and the overall monetary regime, this paper mitigates the efficiency of the current institutional and public actors on monetary phenomena.