(De)valuing the Future: The Discounted Cash Flow Formula and the Investing Manager

The second installment of the special issue on the sociology of financial agency for Sociétés Contemporaines is now out. It includes a key PERFORMABUSINESS contribution by Liliana Doganova, titled “Décompter le futur: la formule des flux actualisés et le manager-investisseur”. From the abstract:

The discounted cash flow formula (DCF) is one of the investor’s key tools. It derives the value of a good from the cash flows that this good will produce in the future, reducing them by a factor that is all the higher as they are distant in time. This paper examines the foundations of the DCF formula and identifies three different configurations – ensembles of problems, actors and objects – in its development. A solution to the practical problem of valuing and managing forests in the calculations of German foresters in the middle of the 19th century, then the expression of a universal definition of value in economic theory in the beginning of the 20th century, the formula has become, since the 1950s, an instrument for governing investment and has spread in firms’ practices. The paper sheds light on the role played by the state, economists and consultants in the constitution of this formula as the main tool for assessing investments. It describes the effects that the DCF formula induces on the objects to which it comes to be applied, and the figure of the user – an “investing manager” – that it sketches and equips.

Unpacking Performativity Processes in Organizations

PERFORMABUSINESS would like to thank the organizers of “Unpacking Performativity Processes in Organizations”, a research seminar held last week in Paris and convened by Franck Aggeri, Laure Cabantous, Emmanuel Coblence, Liliana Doganova and Jean-Pascal Gond. This was a fantastic occasion to test some ideas from the project and to expand the conversation on the fate and scope of “performativity studies”.

Financial Value and Truth

Horacio Ortiz‘s new book is now out from Presses de Sciences Po: Valeur financière et vérité: enquête d’anthropologie politique sur l’évaluation des entreprises cotées en bourse.

From the editor’s website:

“Depuis une trentaine d’années, dans un espace global, l’industrie financière s’est imposée au centre de la collecte et de la distribution des ressources monétaires, jouant ainsi un rôle politique sans avoir presque à rendre des comptes. Les prix des actifs financiers (la bourse, la dette de l’Etat, entre autres) semblent s’imposer aujourd’hui comme un verdict sur la réalité sociale, constituant une donnée incontournable du débat politique et économique.
Dans le contexte bureaucratique et procédural de l’industrie financière, quelles sont les logiques sociales des pratiques quotidiennes selon lesquelles on considère, comme le fait la réglementation financière et la théorie financière standard, que les entreprises cotées en bourse devraient avoir une « valeur financière », résultant de la rencontre d’« investisseurs » agissant dans des « marchés efficients », et relevant ainsi d’une double « vérité », à la fois celle des calculs financiers et celle de la justice de la hiérarchie sociale dans l’accès au crédit ?
A partir d’une enquête de terrain de longue durée auprès d’analystes financiers, de traders, de gérants de fonds et de brokers, à Paris et à New York, cet ouvrage permet de comprendre que la valeur financière des entreprises cotées est le produit d’épistémologies multiples et contradictoires, portées par des employés dans des relations de concurrence et de complémentarité entre eux et entre les entreprises qui les emploient, dans une réalité très éloignée de l’utopie libérale à laquelle appartient l’idée d’une « vérité de la valeur financière ». L’analyse permet ainsi un questionnement critique profond du fondement, pratique et théorique, du régime de vérité dont les pouvoirs publiques donnent aujourd’hui la charge à la finance.”

 

18 April 2014: Research Symposium in Shanghai

How does business knowledge (e.g. financial ideas, educational visions) affect business reality (e.g. valuation practices, consultancy work)? “New Perspectives in the Sociology and Anthropology of Business”, a PERFORMABUSINESS research symposium organized in association with East China Normal University, 18 April 2014 at ECNU Zhongbei Campus in Shanghai, will be an occasion to share views and discuss responses to this question. Program and details available here.

 

Special Issue on the Sociology of Financial Agency

PERFORMABUSINESS is proud and happy to announce the publication of the first installment of “L’agence financière”(“Financial agency”), a special issue of Sociétés Contemporaines edited by Horacio Ortiz and Sabine Montagne. From their introduction:

“This is about deconstructing the notion of “the investor” [...]. Rather than just considering that there are “investors”, fully invested within their investing mission, we explore, through a set of empirical studies, how investment decisions are taken as the outcome of a wide array of relations established between different types of actors. This division of financial labor is grounded in a compound of devices (juristic, technical and representational) which constitute what we call “financial agency” — a notion quite divergent from the liberal, economic view that reduces the subject matter to a bilateral exchange between an seller and a purchaser.” (from S. Montagne & H. Ortiz, 2013, “Sociologie de l’agence financière: enjeux et perspectives”, Sociétés Contemporaines, 93, p. 7).

Cross-border Investment in China

The Second Critical Studies in Accounting and Finance Conference, held on December 15-17, 2013, at the College of Business and Economics of the United Arab Emirates University, in Abu Dhabi, gathered tens of scholars from around the world. It discussed the limits of current paradigms in accounting and finance, from the point of view of practitioners, regulators and scholars. Among other topics, presenters discussed the future roles of sovereign funds, the impact of Bale III regulations, the capacity of innovation in accounting to tackle new social issues such as environmental problems.

I presented preliminary findings of research on cross-border investment in China, in particular how practitioners negotiate different valuation models, different social identities and the conflicting encounter of multifarious institutional and legal environments and traditions. These findings were also presented and discussed at the Seventh European Encounter for the Analysis of Political Societies held in Paris on February 7, 2014 (see previous post here), with a focus on the conflicts between foreign investment professionals and local sellers of small and medium enterprises, in particular the opposition between asset-based valuation methods and discounted cash flow valuation methods.

Is Finance a Naturalization Device?

Of possible interest to blog readers is the forthcoming “Septième rencontre européenne d’analyse des sociétés politiques” to be held in Paris, 6-7 February 2014 — an initiative from REASOPO (Réseau européen d’analyse des sociétés politiques). The title of the conference: “L’économie est-elle un appareil idéologique de naturalisation?” (“Is economics an ideological apparatus of naturalization?”). A number of relevant scholars will be discussing the naturalizing power of economics and economic techniques, including finance. Please check program and details here (in French). PERFORMABUSINESS will be there.

Alaric Bourgoin on Valuation Processes in Management Consulting

Alaric Bourgoin, doctoral research at the Center for the Sociology of Innovation and visiting fellow at the Department of Sociology of Harvard University, will be defending his doctoral work, titled Le conseil en management à l’épreuve de sa mise en valeur (“Valuation processes in management consulting”), on December 12, 2013, at Mines ParisTech. This thesis has played a crucial role in the formation of PERFORMABUSINESS‘s insights on the performative condition of management consulting.

The thesis explores the fabric of the “value” of management consulting. Getting around the classic opposition between a functionalist (rational-technical) and a critical (psycho-social) approach, the thesis understands to the practice of management consulting as a performance geared toward a practical efficacy. Based on lengthly participant observation in a large French consulting firm, the thesis scrutinizes specifically five processes that aim at prompting a sense of “added value”: the singularization of service, the rise in competence, the production of authority, the graphical presentation of assessment and the signaling of activity. The empirical study of such mechanisms fuels a pragmatist theory of value as a practical attachment and furthers understanding of the issues of business culture in contemporary capitalism.

A PDF version of the thesis shall be available soon on-line.