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The corporate objective function

In: Handbook of Corporate Finance

Author

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  • Diane Denis

Abstract

This article details the economic underpinnings of shareholder wealth maximization as a corporate objective function, beginning with the classical model of the firm in a perfect capital market and tracing its evolution through to the contracts model of the firm. Increased political and societal demands for corporate social responsibility have led to calls for a revised objective function under which corporations are called upon to maximize the welfare of all firm stakeholders, often extending to parties who are not involved with the firm. Careful analysis reveals significant problems with such an approach and reaffirms shareholder wealth maximization as the superior objective function.

Suggested Citation

  • Diane Denis, 2024. "The corporate objective function," Chapters, in: David J. Denis (ed.), Handbook of Corporate Finance, chapter 1, pages 7-25, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20105_1
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    File URL: https://www.elgaronline.com/doi/10.4337/9781800373891.00007
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