Is the Only Purpose of a Corporation to Maximize Profit?
24 Pages Posted: 4 May 2015
Date Written: May 2, 2015
Historically, corporations were expected to serve some public purpose as justification for the benefits and privileges they receive from the state. But since the 1970s, the view has become widespread that corporations exist solely to maximize profits and for no other purpose. While the shareholder-first doctrine was supposed to solve the agency problem, in fact it has gotten worse as corporate executives enrich themselves at the expense of shareholders. Moreover, the obsession with current share prices as the only measure of corporate success may be destroying long-term value as companies cut back on investment to raise short-term profits. Tax policies designed to raise after-tax profits have done nothing to reverse these trends.
Keywords: Milton Friedman, shareholder primacy,
JEL Classification: G35, L21, M12, M14
Suggested Citation: Suggested Citation