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A brief review of the role of shareholder wealth maximisation and other factors contributing to the global financial crisis

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  • Noel Yahanpath
  • Tintu Joseph

Abstract

Purpose - In the aftermath of the global financial crisis (GFC) governments lost confidence in market fundamentalism and realised the inadequacies of regulatory measures. The purpose of this paper is to outline the proximate causes of the financial crisis of 2007‐2009 and to investigate the role of the shareholder wealth maximization (SWM) objective in the GFC. Design/methodology/approach - The methodological procedure used in this paper is based on the historical case‐study approach. Case reviews of individuals and world‐level role models of the financial crisis have been cited in this paper. From this aggregated material, the paper examines the side effects of the SWM objective in order to develop the argument that the SWM objective played a role in the present crisis. Findings - The case studies revealed that unethical behaviour, agency issues, CEO compensation, creative accounting and risk shifting are some of the side effects of SWM. These cases indicate that the assumptions on which SWM are based are questionable. Further, it can be argued that the root cause of the GFC is excessive greed and the single‐minded pursuit of SWM. Originality/value - Though many studies have attempted to identify the proximate causes of the GFC, this paper is novel in highlighting the impact of the SWM objective function.

Suggested Citation

  • Noel Yahanpath & Tintu Joseph, 2011. "A brief review of the role of shareholder wealth maximisation and other factors contributing to the global financial crisis," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 3(1), pages 64-77, April.
    • Handle: RePEc:eme:qrfmpp:v:3:y:2011:i:1:p:64-77
    DOI: 10.1108/17554171111124621
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    References listed on IDEAS

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    1. David E. Hawkins, 2006. "Corporate Social Responsibility," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-62581-5, December.
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    1. Mourouzidou-Damtsa, Stella & Milidonis, Andreas & Stathopoulos, Konstantinos, 2019. "National culture and bank risk-taking," Journal of Financial Stability, Elsevier, vol. 40(C), pages 132-143.

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