Why Companies Shouldn鈥檛 Maximize Only Profits
Two economists argue that directors have a duty to maximize shareholders’ welfare, not value.
Why Companies Shouldn鈥檛 Maximize Only ProfitsPaper Companies Should Maximize Shareholder Welfare Not Market Value
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.
- Authored by
- 2017
- ESG/CSR
Read the Research in Chicago Booth Review