Financial Times Handbook of Corporate Finance, 2nd Edition

1

WHAT IS THE FIRM’S OBJECTIVE?

IntroductionA common purposeThe assumed objective for financeWhat is shareholder value?Profit maximization is not the same as shareholder wealth-maximizationCorporate governanceWhat happens if control over directors is weak?ConclusionNotes

Introduction

This chapter considers the most fundamental question facing anyone trying to make decisions within an organization – what is the objective of the business? Without clarity on this point it is very difficult to run a business in a purposeful and effective manner. Unless we know what our objective is we cannot make sensible financial decisions, so it is essential we tackle what at first seems a fairly trivial question early in the book. As you will see the answers ...