Do Publicly Traded Corporations Act in the Public Interest?
28 Pages Posted: 14 Jan 2001 Last revised: 14 Jul 2010
Date Written: March 1990
Models of corporate behavior normally assume that a firm acts in the interest of shareholders, and that shareholders care only about the returns they receive on the shares they own in that firm. But shareholders should also care about the effects of a manager's decisions on the value of shares they own in other firms, on the price they pay as consumers of the firm's output, on the value of the firm's bonds they own, on government tax revenue which finances public expenditures benefiting shareholders, etc. These effects are normally presumed to be of second order. This paper reexamines this presumption, argues that many of these effects are likely to be important, and examines how a variety of conventional conclusions about corporate behavior change as a result.
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