On Shareholder Unanimity in Large Stock Market Economies
Abstract
In an economy with complete markets, the owners of a firm will unanimously desire the firm to maximize profits if it is a perfect competitor. We generalize this result to an economy with incomplete markets. We show that if competitive conditions prevail-that is, if each firm is negligible relative to the aggregate economy-a firm's shareholders will want the firm to maximize the (net) market value of its shares. This result holds whether or not the so-called spanning condition is satisfied. However, while there may be agreement about what goal the firm should pursue, there may be disagreement among shareholders about how best to pursue this goal.
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The paper's results make an empirical case for the theoretical insight that shareholders do not agree on profit maximization as an objective when firms are not price takers.
“Our results can be viewed as challenging this assumption, and thus make an empirical case for taking seriously the theoretical insight (perhaps most clearly stated in Hart, 1979) that shareholders do not agree on profit maximization as an objective when firms are not price takers.”
From Anticompetitive Effects of Common Ownership (2018) · cites this paper as Hart, 1979
The paper's results challenge the assumption that firms' objective is to maximize their own value, and that firm policies and investors' optimization problems are separable.
“Our results can be viewed as challenging this assumption, and thus make an empirical case for taking seriously the theoretical insight (perhaps most clearly stated in Hart, 1979) that shareholders do not agree on profit maximization as an objective when firms are not price takers.”
From Anticompetitive Effects of Common Ownership (2018) · cites this paper as Hart, 1979
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Anticompetitive Effects of Common Ownership
AZAR, J., SCHMALZ, M. C., & TECU, I. (2018) · The Journal of Finance · doi:10.1111/jofi.12698 · Cited by 980 · see citing works
“Hart, O. D. (1979): “On shareholder unanimity in large stock market economies,” Econometrica: Journal of the Econometric Society, pp.”
BackgroundMethodInfluential
- Authors
- Hart, O. D.
- Corresponding author
- Hart, Oliver D.
- ORCID
- Hart, Oliver D.
- Venue
- Econometrica
- Publisher
- JSTOR
- Published
- 1979-09
- Volume
- 47
- Issue
- 5
- Pages
- 1057
- ISSN
- 0012-9682 (ISSN-L)
- OpenAlex
- W2050137676
- Cited by
- 142
- References
- 0
- Citations by year
- 2026: 4 · 2025: 3 · 2024: 12 · 2023: 7 · 2022: 8 · 2021: 1 · 2020: 3 · 2019: 5 · 2018: 10 · 2017: 3 · 2016: 3 · 2015: 1 · 2013: 1
- FWCI
- 18.44
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Econometrica (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Keywords
- incomplete markets, firm objectives, profit maximization, market value maximization, competitive firms, corporate governance
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