Today I received a surprising and pleasant e-mail by Dirk Bezemer from University of Groningen in the Netherlands. He had come across the recently published article of Sebastian Botzem and myself on “Financialization as strategy: Accounting for inter-organizational value creation in the European real estate industry” (see also a summary of key points). And he not only read the paper but also chose to use it as a teaching case.
- What features of financialization mentioned by Foroohar (embedded above) and Turner in the interviews do you recognize in the IMMOFIRM business model?
- Who are the actors described in this paper? In what form do they benefit from the business model?
- Figure 3 (page 37) gives four stages in the IMMOFIRM business model, described in the text. For the first and second stage, give in the table the balance sheet changes implied in the description. Also indicate in what form cash flow (receipts) is generated, and to whom. Some examples are already put into the table (see DOC-File).
- A fifth stage, which never happened, was an IPO. What would have happened then?
- Which actors lose from this business model? How much?
- Why is fair value accounting pro- cyclical? What, according to one interviewee, is its problem?
- How is it possible to mix profit with unrealized capital gains?
- What is the “circular logic inherent in valuation practices” mentioned in the paper?
- How do you know IMMOFORM has a ‘speculative’ financing profiles, in Minsky’s classification? Mention two ways in which speculative’ financing profiles may shift to Ponzi financing profiles, which are unsustainable.
- What happens in this business model, and in which of the four stages, when real estate prices decline?
- How, according to the authors, does the IMMOFIRM business model go beyond speculation?
This is a slightly adapted crosspost from governance across borders.