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Companies Should Maximize Shareholder Welfare Not Market Value

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  • Hart, Oliver
  • Zingales, Luigi

Abstract

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.

Suggested Citation

  • Hart, Oliver & Zingales, Luigi, 2017. "Companies Should Maximize Shareholder Welfare Not Market Value," Journal of Law, Finance, and Accounting, now publishers, vol. 2(2), pages 247-275, November.
    • Handle: RePEc:now:jnllfa:108.00000022
    DOI: 10.1561/108.00000022
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    More about this item

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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