Maximize Shareholder Value Research Articles

On the neutrality of socially responsible investing: The general equilibrium perspective

This paper investigates the conditions under which socially responsible investment (SRI) is neutral from the viewpoint of general equilibrium theory. Three conditions are jointly sufficient for neutrality of SRI. First, the financial market is complete and SRI does not compromise the spanning opportunities it provides. Second, consumers' rankings of consumption bundles are unaffected by their asset holdings. Third, firms maximize shareholder value. Under an additional assumption that is satisfied, e.g., if SRI takes the form of negative screening, the taxes and transfers needed to implement a Pareto‐optimal allocation are the same as in the absence of SRI. SRI is neutral despite financial market incompleteness if there are perfect substitutes for targeted stocks.

EFFECT OF EVA AND CFROI METHODS ON SHAREHOLDERS VALUE MAXIMIZATION AND FINANCIAL PERFORMANCE ESTIMATION: AN EMPIRICAL STUDY

Shareholder value maximisation has become very important for companies due to increased competition with globalization. The main objective of a company in financial terms is to maximize the value of its shareholders. However, traditional accounting-based performance measures are insufficient in this regard. Therefore, companies should be able to determine an appropriate measure to analyze their financial performance that reflects shareholder value. From this point of view, it is aimed to emphasize the importance of the Cash Flow Return on Investment (CFROI) and Economic Value Added (EVA) performance methods in maximisation the value of the shareholders. For the periods including the years 2015-2021 companies in the healthcare sector traded in Stock Exchange Istanbul (BIST) are analyzed. In the study, it is concluded that CFROI and EVA have a positive effect on stock returns of these companies but CFROI has bigger impact. Thus, the CFROI technique is the best measure of financial performance for shareholder value.

IMPACT OF DIVIDEND POLICY ON SHAREHOLDER WEALTH: A CASE OF TOP PERFORMING COMPANIES OF PSX

This is a quantitative research conducted out to find the Shareholder value maximization. What are the factors that contribute to increase the shareholder wealth, their satisfaction and intentions to invest in a particular share? To study this further we analyzed the impact of dividend policy on shareholder wealth, considering the dividend policy as the most important factor in increasing shareholder wealth. To study this relationship the top performing companies of Pakistan Stock Exchange were chosen in our sample that PSX announces every year. The independent variable were Dividend per share, Retained earnings per share, Return on equity and Lagged market price per share. Whereas the dependent variable, to measure the shareholder wealth is Market price per share. To analyze the relationship, the correlation and regression analysis were applied on E-views. After the analysis a positive relation is found between the independent and dependent variables and the overall variables with the model are found to be statistically significant. In doing this research an intensive amount of literature has been reviewed that helped in further explanation of theories and the variable analyzed in this research. Keywords: Dividends per share, retained earnings per share, return on equity, market price per share and lagged market price per share

Conjuring-Up a Bad Guy: The Academy’s Straw-Manning of Milton Friedman’s Perspective of Corporate Social Responsibility and its Consequences

Corporate Social Responsibility (CSR), the idea that business stewards have a broader range of societal obligations than maximizing shareholder value, is a mainstream theme in contemporary management research, education, and practice. Carroll points to one of its controversial aspects when he describes a clash between management scholars (who are generally pro-CSR) and their neoclassical economic contrarians. This has become an increasingly one-sided conflict with the pro-CSR side prevailing in both business and academia. CSR proponents have generally viewed Milton Friedman as an opponent of CSR. However, we argue that Friedman’s purported opposition to CSR is something of a caricature. We reveal that Friedman was concerned that his advocacy for free market operation would promote pro-social outcomes. Indeed, through his emphasis on creating value for consumers, being good stewards of scarce resources, and avoiding rent-seeking’s inefficiencies, Friedman has more in common with CSR proponents than is sometimes acknowledged.

Corporate Governance and Financial Stability: The Case of Commercial Banks in Vietnam

Bank stability is a goal that bank managers aim for in addition to the goal of maximizing shareholder value. To achieve this goal, commercial banks have applied various solutions, including corporate governance because corporate governance plays an important role in the business activities of an enterprise in general as well as in that of a commercial bank in particular. The purpose of this paper is to investigate the impact of corporate governance on the stabilities of Vietnamese commercial banks in the period from 2009 to 2020. Using hand-collected data from 25 commercial banks in Vietnam, by system GMM estimation and the Bayesian Mixed-Effects approach, the paper identifies the characteristics of corporate governance affecting bank stability. Board size, women board members, and board members’ education have a positive impact, and dependent board and foreign board members have a negative impact on bank stability. Our findings show important evidence for an emerging country, such as Vietnam. From the empirical results, the authors suggest several recommendations to maintain and enhance bank stability in the future time.

Pengaruh Kepemilikan Asing dan Kepemilikan Oligarch Ownership Terhadap Debt Leverage pada Perusahaan di Indonesia

When managers are responsible for maximizing shareholder value, in most cases, they can steer the company in a direction that benefits them over the owners. However, this will result in agency costs if the salary of management is not related to the company's value. This study aims to analyze the effect of Foreign Ownership and Oligarch Ownership on the Debt Leverage of Companies in Indonesia. The method used in this study is panel data analysis with a sample of companies listed on the Indonesia Stock Exchange. The results showed that Foreign Ownership's influence had no significant effect on Debt Leverage. On the other hand, the power of Electoral Oligarch Ownership had a positive and significant impact on Debt Leverage. Furthermore, firm Size, Profitability, Dividend Ratio, Growth, and Inflation Rate did not affect Debt Leverage, while (Firm Age, Fixed Assets, and Liquidity ) affected Debt Leverage.

From passive owners to planet savers? Asset managers, carbon majors and the limits of sustainable finance

This article examines the role of the Big Three asset management firms – BlackRock, Vanguard and State Street – in corporate environmental governance. Specifically, it investigates the Big Three’s relationships with the publicly listed Carbon Majors: a small group of fossil fuels, cement and mining companies responsible for the bulk of industrial greenhouse gas emissions. Engaging with the corporate governance concepts of ownership and control, and exit and voice, it charts the rise to prominence of the Big Three, including their environmental, social and governance (ESG) funds, in the ownership of the Carbon Majors. Having established their status as key sources of permanent capital that are unlikely to exit from their investment positions in the world’s most polluting publicly listed corporations, the article examines how control may be exercised through voice by analysing the Big Three’s proxy voting record at Carbon Major annual general meetings. It finds that they more frequently oppose rather than support shareholder resolutions aimed at improving environmental governance and that their voting is more likely to lead to the failure than to the success of these resolutions. Remarkably, there is little to distinguish the proxy voting of the Big Three’s ESG funds from their non-ESG funds. Regardless of whether these resolutions succeeded or failed, they also tend to be narrow in scope and piecemeal in nature. Overall, the article raises serious doubts about the Big Three’s credentials as environmental stewards and argues instead that they are little more than stewards of the status quo of shareholder value maximization.

Environmental, social, and governance ratings and financial performance: Evidence from the European food industry

AbstractLong‐term value creation is expected not only to be concerned with maximizing shareholder value but also includes the impact on other stakeholders and the environment. Environmental, social, and governance (ESG) issues are therefore gaining increasing importance, in line with the growing demand for corporate sustainability. ESG ratings foster the comparison of companies with respect to their sustainable practices. This study aims to investigate how ESG ratings impact financial performance in the European food industry. Ordinary least squares regression is applied to analyze the relation between ESG ratings and financial performance over a 4‐year period from 2017 to 2020. The profitability measures Return on Assets (ROA) and Return on Equity (ROE) are employed as financial performance measures, while ESG ratings are obtained from the database CSRHub. Results show that higher ESG ratings are associated with better financial performance. Although the effect is modest in the present study, the findings support previous results that ESG ratings are positively related to financial performance. Nonetheless, they also highlight that ESG ratings strongly converge to the mean, which depicts the need to reassess whether ESG ratings are able to measure actual ESG behavior.

Threshold concepts and ESG performance: teaching accounting students reconceptualized fundamentals to drive future ESG advocacy

ABSTRACT Whether corporations voluntarily reduce their negative impacts on the environment and society depends upon management advocacy. As future corporate leaders, accounting students will have a critical advocacy role, but they have been taught that shareholder value should not be sacrificed to reduce the externalized environmental and social costs caused by corporations. We believe accounting students are unable to break through the shareholder value maximization doctrine without understanding threshold concepts of corporate externalized costs and revised conceptualizations of corporate ownership and corporate governance. This paper proposes a new Environmental, Social, and Governance (ESG) Learning Model that accounting instructors can employ to understand the threshold concepts. Threshold concepts are reconstitutive and fundamentally change students’ worldviews so that new understandings may emerge and advocating for ESG initiatives becomes possible. The paper concludes with instructional strategies aligned with three pedagogical modalities to help students absorb the ESG threshold concepts.

Should managers be incentivized with stock or options? Evidence from China

Which type of managerial compensation—stock or options—is more effective as an incentive to maximize shareholder value and curb excessive risk-taking has been debated often in the literature. By investigating the stock and option grants by Chinese firms from 2005 to 2015, we find that higher past stock return volatility increases the preference for stock over options, while a significant upward trend in stock price results in a tendency to choose options over stock. Both stock and option grants as forms of managerial compensation lead to better financial performance, with no significant difference. We present evidence to exclude earnings management as the source of improvement in financial performance. Firms using stock as compensation exhibit higher productivity than those using options. In contrast, there is no improvement in managerial ability from using either stock or options as compensation. Our study deepens the understanding of the relationship between the composition of managerial compensation and firm performance.

Corporate governance in today’s world: Looking back and an agenda for the future

Corporate governance research has been driven by underlying assumptions and perspectives that are predominantly based on our understanding of US publicly listed companies and US capital market constituents with an emphasis on shareholder value maximization. Yet today, public companies face a changed governance landscape driven by the growth in passive funds, the dominance of the Big Three index funds, and the emergence of activist hedge funds. In addition, increasing investor emphasis on environmental, social, and governance matters has led to a shift away from shareholder primacy. While public companies face an altered governance context, scholars for the most part have not paid attention to the ramifications of these developments on corporate governance and strategic decision-making. We articulate the factors that have emerged and identify opportunities for future research that will lead to greater insight and a more comprehensive understanding of how the changed governance landscape is influencing managerial and board decision-making and firm outcomes.

If MacIntyre ran a business school… how practical wisdom can be developed in management education

AbstractThe purpose of this paper is to show how a MacIntyre‐inspired business school could contribute to developing practical wisdom in students through its curriculum, methods, faculty, student selection criteria, and governance. Despite MacIntyre's critiques, management can be presented, in MacIntyrean terms, as a second‐order, domain‐relative practice, with practical wisdom as corresponding virtue. Management education consists in developing practical wisdom. How? Primarily by initiating students and enabling them to participate in communal traditions of inquiry focused on, although not limited to, the purposes and ends of business. The transmission of objective knowledge, analytical skills, and techniques is subordinated to the end goal. We consider traditions centered on shareholder value maximization, the balancing of stakeholder interests, and the fulfillment of the common good of firms. Each gives rise to a particular kind of business school. A MacIntyrean business school is one that seeks the common good of firms.

Making the invisible, visible: Overcoming barriers to ESG performance with an ESG mindset

Improving corporate environmental, social, and governance (ESG) performance starts with recognizing that not every dollar of earnings is created equally, as some profit may be earned at the cost of damaging the environment or of harming stakeholder relationships. These costs are often invisible to corporate employees, as they are not recorded. To earn corporate profits that are environmentally and socially responsible, boards and CEOs must overcome two barriers: (1) the ESG issue-assessment barrier, which reflects an organization’s inability to fairly assess, prioritize, scope, and plan ESG initiatives that address the invisible environmental and social damage corporations cause, and (2) the shareholder-value barrier, which recognizes that corporate employees may resist implementing ESG initiatives owing to their entrenched belief that corporations must maximize shareholder returns. To overcome these two barriers, we propose an ESG mindset model that highlights the pitfalls relating to ESG issue assessment and to the common belief in maximizing shareholder value and then suggests tactics to overcome them. The benefits to corporations that successfully overcome the barriers and improve their corporate ESG performance are threefold: They (1) will be perceived as positively contributing to environmental and societal issues, and thereby (2) avoid accusations of greenwashing and (3) improve their standing with stakeholders.

Does efficiency influence firm investment size? Evidence from Ghana

Firms commit huge funds into investment in order to maintain their operational capacity, going concern, and to maximize shareholder value. This action in many instances defines the success of the firm. The question is, How do efficiency and free cash flow associate with firm investment?This paper employs fixed and random effects to answer how technical efficiency estimates using the Data Envelopment Analysis technique and free cash flow influence firm investment. The data was sourced from published annual reports of sampled listed companies.The findings are that technically efficient firms tend to decrease firm investment. Free cash flow to the firm matters in the case of depreciation and amortization for firms. There exists a direct relationship between big size firms and firm investment. Increasing inflation and a depreciating domestic currency do not induce firm investment. The study recommends that inefficient firms must reduce their input mix to match the given level of output if they are to create value for shareholders through reduced firm investment.This article links technical efficiency to firm investment and depreciation and amortization of listed banks and manufacturing firms and is the first of its kind on Ghana.

Risk management transparency and compensation

We examine the optimal design of managerial compensation in a setting where a manager must be induced to maximize shareholder value while managing the firm's cash flow risks. Our model shows that, while high-powered incentive pay (e.g., options) induces the manager to increase shareholder value, it also provides incentives to engage in unproductive risk-seeking activities. The trade-off suggests that shareholders’ monitoring of risk management practices facilitates the awarding of high-powered managerial compensation. We empirically test this prediction using a regulatory shock, namely, the issuance of Statement of Financial Accounting Standards No. 133 (FAS 133). The new standard enhances the stringency of hedge accounting treatments, thereby improving shareholders’ monitoring of firms’ speculative use of derivatives. We find that FAS 133 enhances the awarding of convex compensation to financial officers who manage and oversee corporate derivative programs. However, the new standard does not affect compensation for their peer executives. Our findings support the optimal contracting hypothesis.

Redefining Shareholder Value Maximization: Identifying key sustainable investment strategies and their role in rehabilitating corporate purpose

The purpose of this essay is to situate investing in a commercial context where consideration of ESG and impact factors at the least does not compromise investment returns, and hence excludes discussions on non-profits, private foundations and charitable organizations. Instead, I look into pension funds, private equities and hedge funds whose primary fiduciary duty is to serve the economic interest of beneficiaries. Grounded in case studies and real-life interviews, this essay explore ways in which investors can transcend their roles of merely financiers to become gatekeepers, value creators and reformers of corporate mission, steering companies towards the path of sustainability. Ultimately, by examining the regulatory framework, valuation models and implementation tactics of various sustainable investment strategies, this essay seeks to illuminate a new understanding of ‘value maximization’ that ties positive externalities to long-term portfolio performance.

A Case Study of Costco: from Business and Financial Perspective

Costco is one of the four leading retailers in the world, offering customers a wide range of products at low prices and with high quality. As a low-cost leader, Costco still achieved amazing growth despite the impact of the epidemic. The purpose of this paper is to explore the business model and financial analysis of retailer Costco. This paper adopts the method of case study to discuss Costco's existing business model, strategic and competitive advantages and financial indicators. Provides Costco with a detailed analysis of its business activities relative to industry competitors in order to generate profits and maximize shareholder value. Data is collected from multiple secondary sources to ensure the authenticity of the information. In terms of business model, Costco is significantly affected by the macro environment, mainly due to COVID-19. Secondly, with the rapid economic development, online shopping is becoming more and more popular among young people, so the competition is becoming more and more fierce. Costco shows a flexible business model in its financial analysis. This article provides help for corporate managers, other retailers in the industry and researchers.

Augmenting digital monopolies: A corporate financialization perspective on the rise of Big Tech

Building on the notion of corporate financialization, this article analyzes the financial dynamics of the world’s largest digital platforms over the period 2000–2020: Alibaba, Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, and Tencent. These “Big Tech” corporations jointly form the infrastructural core of the digital economy. Taking cues from critical media studies and political economy, we probe their financial statements according to three stylized indicators of corporate financialization: (i) expanding financial assets and debt; (ii) augmenting asset structures, with intangible assets in the form of goodwill ballooning alongside tangible capital; and (iii) maximizing shareholder value. Our findings point to commonalities among the ‘avantgarde of digital capitalism’, where feedback loops between mounting market dominance, data extraction, and above-average profits have been successfully leveraged with key tools of corporate financialization to accelerate Big Tech’s infrastructural dominance across economy and society.

Corporate Governance versus Real Governance∗

The rough coincidence of the 50th anniversary of Milton Friedman's Sunday New York Times Magazine article, “The Social Responsibility of Business Is to Increase Its Profits,” with today's movement advocating broader corporate purpose than maximizing shareholder value and stressing the public corporation's obligation to other stakeholders raises the questions: to whom is the corporation accountable and for what? This essay broadly distinguishes different governance structures that oversee the corporation's allocation and distributive decisions: on the one hand, how it goes about allocating investor capital and creating value; and on the other, whether it chooses to distribute the value it creates to stakeholders in ways that differ from the outcomes that would result from the labor and other various factor markets through which stakeholders provide their contributions. This distinction serves to underscore the difference between corporate governance, which effectively allocates accountability for the profitability of the corporation's business to the market, and real governance, which vests accountability for distributive decisions ultimately in elected officials.The author posts a warning against those who view today's purpose‐driven governance movement as a call for a shift back to a system of management and corporate governance that Alfred Chandler, in his iconic history of the development of the structure of large U.S. corporations, labeled “managerial capitalism.” Such a solution, as Chandler's chronicles should warn us, are likely to leave us confronting the same problem with which his managerial capitalism left us: the replacement of the invisible hand of markets with the visible hand of a management hierarchy. And this in turn forces us back to the hard question: what systems hold Chandler's management hierarchy accountable for its performance? The author argues that corporate governance and markets should continue to hold management accountable for creating efficiency and value, and that real governance, and ultimately the electorate, continue to be responsible—and if anything, assume greater responsibility—for “redistributive” decisions that override factor market allocations.

Effect of Pre-Merger and Acquisition Capability Strategies on Value-Based Financial Performance of Banks in Ghana

Purpose – The purpose of this paper is to examine the effect of pre-merger and acquisition capability strategies on value-based corporate financial performance of banks in Ghana. Design/Methodology/Approach: A cross-sectional survey was employed comprising four (4) acquirer banks listed on Ghana Stock Exchange (hereafter GSE) and four hundred and eighty-two (482) respondents purposively selected for this study. Data were analyzed using descriptive statistics, principal component analysis (PCA) and regression analyses. All the analyses were performed using SPSS v21. Findings: The findings reinforce the important position pre-merger and acquisition capability strategies on value-based corporate financial performance of acquirer banks. Amongst the pre-M&A success capability strategies that maximise shareholder value are: strategic intent; clear criteria; choice and evaluation of strategic partner and size mismatch; financial, legal and operational due diligence; integrative approach that strengthens the core business, expands the core business and unlocks new business areas; and effective communication before acquisition). Research Limitations/Implications: The study employed only a single research methodological approach, therefore future research could be undertaken using a mixed approach and triangulate to compare findings. Furthermore, the findings from the present study are cross-sectional, considering the limitations there in, a longitudinal approach should be explored. Practical Implications: Emphasis should be place on pre-merger and acquisition capability strategies that maximise shareholder value. This will help practitioners make legitimate decisions and conclusions that can foster business growth. Originality/Value: the effect of pre-merger and acquisition capability strategies on value-based financial performance was tested; previous studies have tended to test the direct effects.