The Social Value of Shareholder Value

9 Pages Posted: 30 Apr 2014

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Date Written: May 2014


Manuscript Type. Perspective.

Research Question/Issue. Can maximizing shareholder value maximize social value?.

Research Findings/Insights. If good corporate governance is defined as maximizing a firm's contribution to overall social welfare, shareholder valuation maximization can achieve this only if capital markets are functionally efficient, a concept quite distinct from the definitions of market efficiency usually found in finance textbooks. Functional efficient capital markets allocate capital to its highest value uses subject to achieving tolerable success toward other social goals, such as equality or environmental standards.

Theoretical/Academic Implications. Pressing top managers to maximize shareholder valuation is of questionable social value if share prices are either informationally inefficient (noisy) or informationally efficient but functionally inefficient (share prices faithfully reflect fundamental values, which depend on political lobbying, gaming complex regulations, etc., more than genuine productivity growth).

Practitioner/Policy Implications. Shareholder valuation, if surrounded by institutions that foster functional efficiency, is a readily observable, legally useful, and socially defensible barometer of corporate governance. The efficacy of corporate governance institutions associated with shareholder value thus depends on the bundle of political economy institutions that promote functional efficiency.

Keywords: Corporate Governance, Corporate Governance Theories, Shareholder Value, Firm‐Level Governance Outcomes, National‐level Governance Outcomes

Suggested Citation

Morck, Randall K., The Social Value of Shareholder Value (May 2014). Corporate Governance: An International Review, Vol. 22, Issue 3, pp. 185-193, 2014, Available at SSRN: or

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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