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Maximising Shareholder Wealth vs. Corporate Governance and Stakeholder Theory: Tracing the Debates - Term Paper Example

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This paper argues that instead of wealth generation for shareholders, the underlying principle that should inform decision-making processes of corporations should be the improvement of corporate governance. This paper discusses two specific areas where corporate governance can be better improved. …
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Maximising Shareholder Wealth vs. Corporate Governance and Stakeholder Theory: Tracing the Debates
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Extract of sample "Maximising Shareholder Wealth vs. Corporate Governance and Stakeholder Theory: Tracing the Debates"

Download file to see previous pages The first is through granting more rights to minority shareholders to bring suit against majority shareholders for prejudicial business decisions and making these rights mean in practice and not just on paper. The second is creating more measures against opportunistic and predatory directors to exact responsibility and accountability for fraud. It is hoped that by examining the corners of the policy framework of covering these areas, this paper surfaces issues that need to be addressed and prioritized, thereby proving the necessity of establishing corporate governance as the first order of the day before simple wealth generation and maximization. Maximizing Shareholder wealth vs. Corporate Governance and Stakeholder Theory: Tracing the Debates It is imperative to trace the debates between the competing schools of thought with respect to making shareholder wealth maximization the primary overriding goal of a corporation. Jensen1 has argued with much conviction that this is the “most purposeful, single-valued objective function” and that the furtherance of this goal will lead efficiency. Krishnan2 summarises cogently the shareholder wealth maximization theory: This paradigm is built upon the classic competitive markets assumption. Essentially, it is assumed that all participants who have transactions with a firm - employees, suppliers, customers, lenders, etc. - are seen as willing participants in free and competitive markets and are fully compensated at fair market prices for their services/supplies or get fairly valued products/services for the prices they pay. The shareholders are unique because they are residual claimants and they do not have prior explicit or implicit claims. They can add to their wealth only after satisfying all the prior claims of every other participant. They bear all the risk of failure and therefore it is only fair the hat they get the rewards. The model also assumes that there are no externalities or any harm or damage done to any non-participant in the transactions.  ...Download file to see next pagesRead More
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