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Market Value Maximization through Strategic Delegation

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  • Wang, Shinn-Shyr
  • Stiegert, Kyle W.

Abstract

In this paper, we develop a model of strategic delegation in which shareholders maintain an objective of market value maximization (MVM) of the firm's assets as measured by a capital asset pricing model (CAPM). Optimal delegation requires that managers maximize a linear combination of expected profits and firm values. An interesting feature of this model is that optimal delegation contracts of the MVM objective mitigate competition relative to standard price and quantity duopoly outcomes. In the MVM model, the delegation encourages managers to control systematic risk, which leads to greater market coordination, higher profits, and higher stock values. Impacts of degree of product differentiation on delegation under price and quantity competitions are also explored extensively. Our findings show that concerns about identifying the mode of competition are overstated in the literature.

Suggested Citation

  • Wang, Shinn-Shyr & Stiegert, Kyle W., 2007. "Market Value Maximization through Strategic Delegation," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9754, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea07:9754
    DOI: 10.22004/ag.econ.9754
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    Cited by:

    1. Zhao, Kai & Wu, Wanshu, 2015. "Ambiguity Between Pirate Incentive And Collective Desirability Within Semi-Delegation Pattern," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 56(2), pages 259-279, December.

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    Keywords

    Marketing;

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