Companies Should Maximize Shareholder Welfare Not Market Value

Luigi Zingales and Oliver Hart

No 12186, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What is the appropriate objective function for a firm? We analyze this question for the case where shareholders are prosocial and externalities are not perfectly separable from production decisions. We argue that maximization of shareholder welfare is not the same as maximization of market value. We propose that company and asset managers should pursue policies consistent with the preferences of their investors. Voting by shareholders on corporate policy is one way to achieve this.

Keywords: Firm objective; Shareholder value; Prosocial; Friedman (search for similar items in EconPapers)
JEL-codes: G30 K22 L21 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-cdm, nep-cfn, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (151)

Downloads: (external link)
https://cepr.org/publications/DP12186 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Companies Should Maximize Shareholder Welfare Not Market Value (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12186

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12186

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().