Why Shareholder Wealth Maximization Despite Other Objectives
28 Pages Posted: 6 May 2018 Last revised: 21 Nov 2018
Date Written: November 19, 2018
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: Suggested Citation