Companies Should Maximize Shareholder Welfare Not Market Value
Oliver Hart, Harvard University, USA, firstname.lastname@example.org
Luigi Zingales, Booth School of Business, University of Chicago, USA, Luigi.Zingales@chicagobooth.edu
Oliver Hart and Luigi Zingales (2017), "Companies Should Maximize Shareholder Welfare Not Market Value", Journal of Law, Finance, and Accounting: Vol. 2: No. 2, pp 247-275. http://dx.doi.org/10.1561/108.00000022
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.