Shareholder Theory/Shareholder Value
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Shareholder theory states that the primary objective of management is to maximize shareholder value. This objective ranks in front of the interests of other corporate stakeholders, such as employees, suppliers, customers, and society. Shareholder theory argues that shareholders are the ultimate owners of a corporate’s assets, and thus, the priority for managers and boards is to protect and grow these assets for the benefit of shareholders. Shareholder theory assumes that shareholders value corporate assets with two measurable metrics, dividends and share price. Therefore, management should make decisions that maximize the combined value of dividends and share price increases. However, shareholder theory fails to consider that shareholders and corporates may have other objectives that are not based on...
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