The Social Value of Shareholder Value. (14th March 2014)

• Record Type: Journal Article
• Authors: Morck, Randall
• Is Part Of: Corporate governance. Volume 22:Number 3(2014:May)
• Page Start: 185
• Page End: 193
• Publication Date: 2014-03-14
• Subjects: Corporate governance -- Periodicals; 658.1145
• DOI: 10.1111/corg.12063
• Languages: English
• ISSNs: 0964-8410

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <sec id="corg12063-sec-0001" sec-type="section"> <title>Manuscript Type</title> <p>Perspective</p> </sec> <sec id="corg12063-sec-0002" sec-type="section"> <title>Research Question/Issue</title> <p>Can maximizing shareholder value maximize social value?</p> </sec> <sec id="corg12063-sec-0003" sec-type="section"> <title>Research Findings/Insights</title> <p>If good corporate governance is defined as maximizing a firm's contribution to overall social welfare, shareholder valuation maximization can achieve this only if capital markets are functionally efficient, a concept quite distinct from the definitions of market efficiency usually found in finance textbooks. Functional efficient capital markets allocate capital to its highest value uses subject to achieving tolerable success toward other social goals, such as equality or environmental standards.</p> </sec> <sec id="corg12063-sec-0004" sec-type="section"> <title>Theoretical/Academic Implications</title> <p>Pressing top managers to maximize shareholder valuation is of questionable social value if share prices are either informationally inefficient (noisy) or informationally efficient but functionally inefficient (share prices faithfully reflect fundamental values, which depend on political lobbying, gaming complex regulations, etc., more than genuine productivity growth).</p> </sec> <sec id="corg12063-sec-0005" sec-type="section"> <title>Practitioner/Policy Implications</title> <p>Shareholder valuation, if surrounded by institutions that foster functional efficiency, is a readily observable, legally useful, and socially defensible barometer of corporate governance. The efficacy of corporate governance institutions associated with shareholder value thus depends on the bundle of political economy institutions that promote functional efficiency.</p> </sec> </abstract>