Companies Should Maximize Shareholder Welfare Not Market Value
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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.
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Maximizing firm value is not necessarily the same as maximizing shareholder welfare.
“However, maximizing firm value is not necessarily the same as maximizing shareholder welfare (Hart and Zingales 2017).”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Hart and Zingales 2017
Firms can pursue CSR activities with negative NPV and still act in the interest of shareholders when at least some shareholders put a non-monetary value on CSR or have preferences for specific CSR issues.
“However, firms could also pursue CSR activities with negative NPV and still act in the interest of shareholders, when (at least some) shareholders put a non-monetary value on CSR or have preferences for specific CSR issues (e.g., Fama and French 2007; Friedman and Heinle 2016; Hart and Zingales 2017).”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Hart and Zingales 2017
In such cases, the firm maximizes shareholder welfare but not shareholder value.
“Here, the firm maximizes shareholder welfare but not shareholder value (Hart and Zingales 2017).”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Hart and Zingales 2017
Maximizing shareholder welfare rather than shareholder value involves information that is relevant to shareholders' CSR preferences.
“Thus, maximizing shareholder welfare (rather than shareholder value; (Hart and Zingales 2017) involves information that is relevant to shareholders’ CSR preferences.”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Hart and Zingales 2017
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Cited by 668
- Authors
- Hart, O., & Zingales, L.
- Affiliations
- Harvard University (US)
- University of Chicago (US)
- Venue
- Journal of Law, Finance, and Accounting
- Publisher
- Emerald
- Published
- 2017-11-06
- Volume
- 2
- Issue
- 2
- Pages
- 247-275
- ISSN
- 2380-5005 (ISSN-L)
- 2380-5013
- OpenAlex
- W3121370091
- Cited by
- 668
- References
- 0
- Citations by year
- 2026: 63 · 2025: 97 · 2024: 88 · 2023: 128 · 2022: 85 · 2021: 53 · 2020: 70 · 2019: 53 · 2018: 24 · 2017: 4 · 2016: 2 · 2015: 1
- FWCI
- 133.63
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Licence
- cc-by
- Locations
- Journal of Law Finance and Accounting (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Strategy and Management › Financial Reporting and Valuation Research
- Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Social Responsibility Reporting
- Keywords
- shareholder welfare, market value maximization, externalities, corporate governance, shareholder voting, investor preferences, asset management, business policy
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