Summary of Corporation and Shareholder Value Maximization Essay
Public corporations have a main objective of maximizing shareholders’ value in virtually all the decisions made. Various arguments have been brought forward by several academics and researchers in an attempt to discuss the importance of shareholder value creation by corporations. There have been claims and counterclaims pertaining to the role of corporations in maximizing the value of shareholders. The article is based on the desire to analyze the various arguments made by diverse academics about shareholder value maximization by corporations. There are contrasting views about shareholder value maximization by corporations that are presented in the article. Mergers undertaken by corporations should be on the basis of shareholder wealth maximization.
Normative consensus is discussed in the article is presented as an important subject of discussion. Competitive forces have compelled managers to undertake mergers with an aim of maximizing shareholder value. Normative convergence theory is presented as a theory bordering between social welfare and shareholder value maximization. Social value maximization is achieved through shareholder wealth maximization. Two problems are identified in relation to shareholder value maximization. First, there is no enhancement of social welfare through Pareto optimality. Similarly, the assumptions of First Fundamental Welfare Theorem are never realized in real life.
Through an analysis of public corporations’ websites, it is possible to detect presence of shareholder value maximization objectives. Legal classification structures are addressed while making an analysis of corporations’ websites on aspects of shareholder value maximization through major corporate decisions. Common-law and civil-law backgrounds were considered in the analysis of legal elements in shareholder value maximization in corporations. Corporations’ main objectives in the mission statements were widely analyzed to depict presence of shareholder value maximization. Evidently, customer satisfaction, employee satisfaction and shareholder value maximization are considered important in corporations’ mission statements. Nevertheless, legal background has no influence on the contents of corporations’ mission statements. This topic is an important addition to corporate finance in that it helps in analyzing the factors influencing corporate decisions and strategic undertakings.