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Companies Should Maximize Shareholder Welfare Not Market Value

Oliver Hart and Luigi Zingales ()

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; Friedman; prosocial; shareholder value (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
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