Transcription of Value Maximization and the Corporate Objective …
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Value Maximization and the Corporate Objective …
00-058 Copyright 2000 Michael C. papers are in draft form. This working paper is distributed for purposes of comment anddiscussion only. It may not be reproduced without permission of the copyright holder. Copies of workingpapers are available from the Maximizationand the CorporateObjective FunctionMichael C. JensenHarvard business SchoolValue Maximization and the Corporate Objective FunctionMichael C. JensenHarvard business SchoolNegotiations, Organizations, and Markets paper examines the role of the Corporate Objective function in Corporate productivity andefficiency, social welfare, and the accountability of managers and directors. I argue that since it islogically impossible to maximize in more than one dimension, purposeful behavior requires a singlevalued Objective function. Two hundred years of work in economics and finance implies that in theabsence of externalities (and when all goods are priced) social welfare is maximized when each firmin an economy maximizes its total market Value .
Value Maximization and the Corporate Objective Function Michael C. Jensen Harvard Business School Negotiations, Organizations, and Markets Unit Mjensen@hbs.edu
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