The Maximisation Of Shareholder Value

1691 Words Dec 2nd, 2016 7 Pages
Corporate Finance Formative Assignment
Joshua Lillis Seminar Group 001 Seminar Tutor: Maryam Alhalboni

The maximisation of shareholder value is a corporate objective that has become increasingly popular since the 1980’s. Many companies explicitly state that maximising shareholder value is one of their key business objectives; an example of this is Coca-Cola, who state in their Coca-Cola Company Vision (2016) that “maximising long-term return to shareholders” is one of their business goals. In this essay, I will consider the extent to which maximising shareholder value is a reasonable objective for firms, as well as provide a critical analysis of the alternative objectives that a firm may pursue.

Firstly, it is important to recognise that shareholder value theory receives wide criticism. Koslowski (2000) suggests that there are more fundamental objectives for a firm than the maximisation of shareholder value, and so a company should not be orientated primarily towards this aim. This argument is founded upon the basis that the main reason that firms exist is to produce output, and not to produce profits for the shareholders. Koslowski argues that therefore, it is only in a small number of firms such as asset managers (and other financial institutions) where the production goal is to maximise shareholder value (and this is because the product on offer is the maximisation of a return on a client’s investment). In this case “the performance of the firm can be…
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