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Value Maximization, Stakeholder Theory, and the Corporate Objective Function

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  • Michael C. Jensen

Abstract

This paper examines the role of the corporate objective function in increasing corporate productivity, social welfare, and the accountability of managers and directors. 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 aims to maximize its total market value. Copyright Copyright (c) 2010 Morgan Stanley.

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Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

Volume (Year): 22 (2010)
Issue (Month): 1 ()
Pages: 32-42

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Handle: RePEc:bla:jacrfn:v:22:y:2010:i:1:p:32-42

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