Against Hollow Firms: Repurposing the corporation for a more resilient economy

Welcome to this lunch seminar with presentation by Professor Adam Leaver, Director for the Centre for Research in Accounting & Finance in Context (CRAFiC), University of Sheffield.

Open for all interested. Please register your participation below.


The COVID-19 pandemic has revealed weaknesses within large, well-established companies. But are those weaknesses caused by the pandemic, or are they the consequence of excesses in the non-financial (or non-banking) corporate sector post-2008?

This presentation will argue that many of the corporate weaknesses presently observed were caused by excesses in the post-2008 period. Specifically, I will argue that company reserves have been ‘hollowed out’ leaving firms more vulnerable to collapse in economic downturns. This was caused by three processes: excessive shareholder distributions, over-borrowing and the growth of ‘marked to market’ assets which may now be written down. Companies now face the prospect of booking asset impairment losses on top of falling operating profits, while trying to find liquidity from the capital markets as company credit ratings fall and equity markets dry up.

We find that a significant minority of firms paid out more to shareholders than they generated in net income. A sizable number of firms borrowed heavily in order to do this. Firms have also used debt and their treasury stock to finance merger and acquisition activity which generates ‘goodwill’ that will now be written down.

Hence, whilst at first glance the Covid-19 pandemic could be understood as a classical ‘exogenous shock’: an event from outside the economic system that causes economic disruption and breakdown. Our report shows that understanding is partial. The crisis should be understood as an interaction between this event and pre-existing financial and corporate fragilities that have built up within the economic system in the post-2008 period. In economic parlance these fragilities emerge from ‘procyclical’ processes - the accumulated collective priorities, decisions, behaviours, risk perceptions and reporting practices of market participants which, individually and at the aggregate produce weaknesses that amplify economic instability.


Please register your participation below and we will send you the Zoom-link for the lunch seminar. If you have any questions, please contact our administration.


Published May 4, 2021 10:38 AM - Last modified May 4, 2021 10:38 AM