Are We Really Maximizing Shareholder Wealth? Or

Abstract

This article deals with the overriding objective of maximizing shareholder wealth. We show that the maxim evolved from a false interpretation of Adam Smith's ideas and philosophy, and that it masquerades as a well-defined and unambiguously measurable concept. We also argue that, even if it were a well-defined concept, it still should not be an overriding goal of business activity, especially when its short-term long-term consequences are being explicitly studied.