CoChat
Sign Up
PreprintCited by 666Corporate Finance and GovernanceFinancial Reporting and Valuation ResearchCorporate Social Responsibility Reporting

Companies Should Maximize Shareholder Welfare Not Market Value

Open access
Hart, Oliver, Zingales, Luigi·2017·Journal of Law Finance and Accounting
DOI 10.67929/ecgi-fin-521-2017

Preprint — published as 10.1561/108.00000022 · Paper page

Open this paper in CoChat — free accountOpen PDF

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.

The claims and statistics of this paper haven’t been checked yet.

Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.

A few free checks a day · papers already verified open instantly · results are public

Integrity signals

Registry

Crossref · 10.67929/ecgi-fin-521-2017

Cites

Statistics

Claims the paper makes

The claims and statistics of this paper haven’t been checked yet.

Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.

A few free checks a day · papers already verified open instantly · results are public

Claims other papers make about this one

Each is checked against this paper’s own text: does it say what the citing paper says it does?

  • The pervasiveness of externalities justifies the principle that managers should pursue the welfare of the shareholders rather than their monetary returns.

    “The pervasiveness of externalities, according to Hart and Zingales (2017), justifies the principle that managers should pursue the welfare of the shareholders rather than their monetary returns.”

    From What is the business of business? Who said we had to be greedy? (2021) · cites this paper as Hart and Zingales (2017)

    The Introduction argues that shareholder welfare is broader than market value and that shareholders may care about externalities. But the paper’s case for managers pursuing shareholder welfare depends on shareholders having social concerns and on externalities not being separable from production decisions; the pervasiveness of externalities alone is not its stated justification. Our copy provides section labels but no page numbers for these passages. (LLM, conf=0.82)

    Experimental — accuracy not yet measured

  • Typical shareholders do care about externalities and therefore focusing on a narrow bottom line is not appropriate.

    “By this, they mean that typical shareholders do care about these externalities and therefore focusing on a narrow bottom”

    From What is the business of business? Who said we had to be greedy? (2021) · cites this paper as Hart and Zingales (2017)

Self-check

Percentages, sums and reported differences re-computed from the paper’s own numbers.

The self-check needs the paper’s full text.

Cites

No references could be resolved yet.

Research works printed but not linked: 31

  1. Anderson, A. "The Policy Of Determining Significant Policy Under Rule 14a-8(I)(7)," Denver Law Review May 6, 2016. http://www.denverlawreview.org/dlr-onlinearticle/2016/5/6/the- policy-of-determining-significant-policy-under-rule-14a.html
  2. Andreoni, J., "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving," Economic Journal (1990) 100(401): 464-477.
  3. Barnea, A., R. Heinkel, and A. Kraus, "Corporate Social Responsibility, Stock Prices, and Tax Policy," Canadian Journal of Economics, (2013) 46(3): 1066-1084.
  4. Baron, D. "Corporate Social Responsibility and Social Entrepreneurship," Journal of Economics & Management Strategy, (2007) 16(3): 683-717.
  5. Bebchuk, L. and A. Cohen, "The Costs of Entrenched Boards," Journal of Financial Economics (2005) 78(2): 409-433.
  6. Bénabou, R. and J. Tirole, "Individual and Corporate Social Responsibility," Economica (2010) 77(305): 1-19.
  7. Berle, A.A., "Corporate Powers as Powers in Trust," Harvard Law Review (1931) 44(7): 1049- 1074.
  8. Besley, T. and M. Ghatak, "Retailing Public Goods: The Economics of Corporate Social Responsibility," Journal of Public Economics (2007) 91: 1645-1663.
  9. Blair, M. and L. Stout, "A Team Production Theory of Corporate Law," Virginia Law Review (1999) 85(2): 247-328.
  10. Brav, A., W. Jiang and H. Kim, "The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes," Review of Financial Studies (2015) 28(10): 2723-2769.
  11. Cummings, B., "Benefit Corporations: How to Enforce a Mandate to Promote the Public Interest," Columbia Law Review (2012) 112(3): 578-612.
  12. DellaVigna, S., J. List, and U. Malmendier, "Testing for Altruism and Social Pressure in Charitable Giving," Quarterly Journal of Economics (2012) 127(1): 1-56.
  13. Dodd, M.E., "For Whom Are Corporate Managers Trustees?" Harvard Law Review (1932) 45(7): 1148-1163.
  14. Elhauge, E., "Sacrificing Corporate Profits in the Public Interest," New York University Law Review (2005) 80(3): 733-869.
  15. Farrell, J., "Owner-Consumers and Efficiency," Economics Letters (1985) 19(4): 303-306.
  16. Friedman, M. Capitalism and Freedom. Chicago: University of Chicago Press, 1962.
  17. Graff Zivin, J. and A. Small, "A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility," Topics in Economic Analysis & Policy (2005) 5(1): 1-19.
  18. Hansmann, H. The Ownership of Enterprise. Harvard University Press, 1996.
  19. Heinkel, R., A. Kraus, and J. Zechner, "The Effect of Green Investment on Corporate Behavior," Journal of Financial and Quantitative Analysis (2001) 36(4): 431-449.
  20. Hirst, Scott, "Social Responsibility Resolutions," The Journal of Corporation Law, forthcoming 2017.
  21. Hong, Harrison G. and Marcin T. Kacperczyk, "The price of sin: The effects of social norms on markets," Journal of Financial Economics, 2009, 93 (1), 15 -36.
  22. Kant, Immanuel, Grounding for the Metaphysics of Morals. Translated by Ellington, James W. (3rd ed.),1993.
  23. Kitzmueller, M. and J. Shimshack, "Economic Perspectives on Corporate Social Responsibility," Journal of Economic Literature (2012) 50(1): 51-84.
  24. Lazear, E.P., U. Malmendier, and R.A. Weber, "Sorting in Experiments with Application to Social Preferences," American Economic Journal: Applied Economics (2012) 4(1): 136-163.
  25. Magill,M., M.Quinzii, and J.-C Rochet, "A Theory of the Stakeholder Corporation,"Econometrica (2015) 83(5), 1685-1725.
  26. Mayer, C. Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It. Oxford: Oxford University Press, 2013
  27. Schumacher, H., I. Kesternich, M. Kosfeld, and J. Winter, "One, Two, Many -Insensitivity to Group Size in Games with Concentrated Benefits and Dispersed Costs," The Review of Economic Studies, forthcoming, 2017.
  28. Alan J. Auerbach, (Chicago: University of Chicago Press, 1988).
  29. Shleifer, A., 2004, "Does Competition Destroy Ethical Behavior?" American Economic Review Papers and Proceedings 94 (2): 414-418.
  30. Skog, R. "The Importance of Profit in Company Law -a Comment from a Swedish Perspective," European Company & Financial Law Review (2015) 12(4): 563-571.
  31. Zingales, Luigi "The Future of Securities Regulation," Journal of Accounting Research (2009) 47(2): 391-426.

Cited by

Sorted by citations

Authors
Hart, O., & Zingales, L.
Affiliations
  • Harvard University (US)
  • University of Chicago (US)
ORCID
Venue
Journal of Law Finance and Accounting
Publisher
European Corporate Governance Institute (ECGI)
Published
2017-07-22
Volume
2
Issue
2
Pages
247-275
ISSN
2380-5005 (ISSN-L)
DOI
10.67929/ecgi-fin-521-2017
OpenAlex
W3121370091
Cited by
666
References
0
Citations by year
2026: 62 · 2025: 97 · 2024: 87 · 2023: 128 · 2022: 85 · 2021: 53 · 2020: 70 · 2019: 53 · 2018: 24 · 2017: 4 · 2016: 2 · 2015: 1
FWCI
133.82
Type
journal article
Language
en
Open access
Licence
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

About these checks

Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.

Statistics and arithmetic are recomputed, not judged.

Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.

What counts as a claim ›How we measure confidence ›How we check this ›

Are you an author, or do you see a problem with this page? Request a review