Alternatives to Stock Price Maximization

There are obvious problems associated with each of the linkages underlying wealth maximization. Stockholders often have little power over managers, and managers consequently put their interests above those of stockholders. Lenders who do not protect their interests often end up paying a price, when decisions made by firms transfer wealth to stockholders. Information delivered to financial markets is often erroneous, misleading or delayed, and there are significant differences between price and market value. Finally, firms that maximize wealth may do so while creating large costs for society.

Given these problems, there are alternative courses of action that we can follow. One is to find a different system for keeping errant management in check. The second is to find an alternative objective for the firm. In this section, we will consider these alternatives.

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Responses

  • tauno
    What are alternatives of stock price maximization?
    2 years ago

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