Chapter 11What Really Matters to Investors (and Managers)

The Corporate Mission

Economic theory, particularly the branches known as the “theory of the firm” and “industrial organization,” define succinctly the major objective of a business enterprise as striving to gain sustained competitive advantage.1 Such competitive advantage over rivals assures adequate return to owners (investors), workforce employment, and long-term survival of the enterprise for customers' benefit. Focusing on sustained competitive advantage precludes, of course, myopic managerial gimmicks, like corporate acquisitions aimed at boosting short-term reported sales and earnings, share buybacks designed to enhance quarterly earnings-per-share, or earnings manipulations intended to misinform investors. Achieving sustained competitive advantage is thus the fundamental, long-term objective of a business enterprise, and what really matters to its owners. This implies that corporate information released to investors, such as the accounting-based financial ...

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