39 Pages Posted: 22 Jul 2017 Last revised: 9 Aug 2017
Date Written: July 1, 2017
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, Shareholder Value, Prosocial, Friedman
JEL Classification: L21, G30, K22
Suggested Citation: Suggested Citation
Hart , Oliver and Zingales, Luigi, Companies Should Maximize Shareholder Welfare Not Market Value (July 1, 2017). ECGI - Finance Working Paper No. 521/2017. Available at SSRN: https://ssrn.com/abstract=3004794