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Value Maximization, Stakeholder Theory, And The Corporate Objective Function

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Author Info
Michael C. Jensen

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Abstract

This paper examines the role of the corporate objective function in corporate productivity and efficiency, social welfare, and the accountability of managers and directors. The author argues that because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a single-valued objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy maximizes its total market value. 2001 Morgan Stanley.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1745-6622.2001.tb00434.x
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Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

Volume (Year): 14 (2001)
Issue (Month): 3 ()
Pages: 8-21
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Handle: RePEc:bla:jacrfn:v:14:y:2001:i:3:p:8-21

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  1. Chilosi, Alberto & Damiani, Mirella, 2007. "Stakeholders vs. shareholders in corporate governance," MPRA Paper 2334, University Library of Munich, Germany. [Downloadable!]
  2. Lorenzo Sacconi, 2004. "A Social Contract Account for CSR as Extended Model of Corporate Governance (Part I): Rational Bargaining and Justification," Department of Economics Working Papers 0410, Department of Economics, University of Trento, Italia. [Downloadable!]
  3. Leonardo Becchetti & Luisa Giallonardo & Elisabetta Tessitore, 2006. "Consumer driven market mechanisms to fight inequality: the case of CSR/product differentiation models with asymmetric information," Working Papers 50, ECINEQ, Society for the Study of Economic Inequality. [Downloadable!]
  4. Schauten, M.B.J. & Spronk, J., 2006. "Optimal Capital Structure: Reflections on Economic and Other Values," Research Paper ERS-2006-074-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  5. Costanza Consolandi & Ameeta Jaiswal-Dale & Elisa Poggiani & Alessandro Vercelli, 2008. "Global Standards and Ethical Stock Indexes: the case of the Dow Jones Sustainability Stoxx Index," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0208, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  6. Ricart, Joan E. & Rodríguez, Miguel A. & Sanchez, Pablo, 2002. "Sustainable development and sustainability of competitive advantage: A dynamic and sustainable view of the firm," IESE Research Papers D/462, IESE Business School. [Downloadable!]
  7. Jorge Tarziján M, 2003. "Revisando La Teoria De La Firma," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 6(2), pages 149-177. [Downloadable!]
  8. Gérard Charreaux, 2004. "Michael Jensen-la théorie positive de l’agence et ses applications à l’architecture et à la gouvernance des organisations," Working Papers FARGO 1041203, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
  9. Céline Chatelin, 2003. "Stakeholder Governance and Organizational Performance: Lessons from past privatizations;Gouvernance partenariale et performance organisationnelle:les enseignements des privatisations passées," Working Papers FARGO 1030102, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
  10. Renneboog, L.D.R. & Horst, J.R. ter & Zhang, C., 2007. "Socially Responsible Investments: Methodology, Risk Exposure and Performance," Discussion Paper 2007-013, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  11. Ahmadu Sanda & Aminu S. Mikailu & Tukur Garba, 2005. "Corporate governance mechanisms and firm financial performance in Nigeria," Research Papers RP_149, African Economic Research Consortium. [Downloadable!]
  12. Lorenzo Sacconi, 2008. "CSR as contractarian model of multi-stakeholder corporate governance and the game-theory of its implementation," Department of Economics Working Papers 0818, Department of Economics, University of Trento, Italia. [Downloadable!]
  13. Miguel A. García-Cestona & Jordi Surroca, . "Eficiencia en Organizaciones Orientadas a los Interesados: Las Cajas de Ahorro Españolas," Studies on the Spanish Economy 146, FEDEA. [Downloadable!]
  14. Pawlina, Grzegorz & Renneboog, L.D.R., 2005. "Is investment-cash flow sensitivity caused by the agency costs or asymmetric information? Evidence from the UK," Discussion Paper 23, Tilburg University, Center for Economic Research. [Downloadable!]
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  15. Lorenzo Sacconi, 2004. "Corporate social responsibility (CSR) as a model of "extended" corporate governance. An explanation based on the economic theories of social contract, reputation and reciprocal conformism," LIUC Papers in Ethics, Law and Economics 142, Cattaneo University (LIUC). [Downloadable!]
  16. Lewis Evans and Patrick Hughes, 2003. "Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature," Treasury Working Paper Series 03/31, New Zealand Treasury. [Downloadable!]
  17. Peter Wirtz, 2004. "The Changing Institutions of Governance in Corporate France:What Drives the Process?," Working Papers FARGO 1040701, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
  18. Lozano, Mª Belén & Restrepo, Juan Pablo, 2005. "El impacto de la liquidez corporativa sobre el valor de las decisiones financieras de la empresa," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2005-08, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
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