The Shareholder Wealth Maximization Norm and Industrial Organization
Mark J. Roe
Harvard Law School
University of Pennsylvania Law Review, Vol. 149, p. 2063, 2001
Harvard Law and Economics Discussion Paper No. 339
Harvard Public Law Working Paper No. 19
Industrial organization affects the relative effectiveness of the shareholder wealth maximization norm in maximizing total social wealth. In nations where product markets are not strongly competitive, a strong shareholder primacy norm fits less comfortably with social wealth maximization than elsewhere because, where competition is weak, shareholder primacy induces managers to cut production and raise price more than they otherwise would. Where competition is fierce, managers do not have that option. There is a rough congruence between this inequality of fit and the varying strengths of shareholder primacy norms around the world. In Continental Europe, for example, shareholder primacy norms have been weaker than in the United States. Historically, Europe's fragmented national product markets were less competitive than those in the United States, thereby yielding a fit between their greater skepticism of the norm's value and the structure of their product markets. As Europe's markets integrate, making its product markets more competitive, pressure has arisen to strengthen shareholder norms and institutions.
Number of Pages in PDF File: 20
Date posted: September 26, 2001
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