Why Shareholder Wealth Maximization Despite Other Objectives

28 Pages Posted: 6 May 2018 Last revised: 21 Nov 2018

See all articles by Richard M. Frankel

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: November 19, 2018

Abstract

A long-standing and fundamental idea in economics is that firms should act to increase shareholder wealth subject to the constraints of competition, law and ethical custom. While many might agree this principle governs managerial behavior, it continues to arouse controversy. We describe the economic consequences of pursuing the objective of wealth creation and implications for social welfare. We also discuss major criticisms of this principle. Competing objectives espoused by shareholders and members of society, in our opinion, become the purview of politics.

Keywords: Firm Objective, Shareholder Wealth, Friedman, Corporate Social Responsibility

JEL Classification: L21, G30, K22

Suggested Citation

Frankel, Richard M. and Kothari, S.P. and Zuo, Luo, Why Shareholder Wealth Maximization Despite Other Objectives (November 19, 2018). Available at SSRN: https://ssrn.com/abstract=3165085 or http://dx.doi.org/10.2139/ssrn.3165085

Richard M. Frankel

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile/id/lz352

Register to save articles to
your library

Register

Paper statistics

Downloads
876
rank
25,702
Abstract Views
3,139
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information