Shareholder Theory Versus Stakeholder Theory in Explaining Financial Soundness
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The debate between the shareholder theory (ST) developed by Friedman (The New York Times Magazine, 1970) and stakeholder theory (SkT) pioneered by Freeman (Strategic management: A stakeholder approach, 1984) centred on what should be the rightful corporate objective. ST asserts that corporations’ only objective is profit and managers maximise shareholder wealth. Conversely, SkT argues for stakeholder value creation, such as better living conditions, safer workplace, cleaner environment, and improved fairness. This study examines the two theories concurrently by identifying shareholder and stakeholder factors and their impact on financial soundness using perception scores of top executives and financial analysts in Britain’s Most Admired Company (BMAC, https://www.managementtoday.co.uk/bmac) 2016 survey.
Numerous works have been carried out to examine shareholder and stakeholder motives independently. To the best of our knowledge, this is the first study examining both ST and SkT...