AFM373 Lecture Notes - Lecture 12: Balanced Scorecard, Stakeholder Theory, Preferred Stock
16 Dec 2018
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Document Summary
The basic issue of governance: is the issue of how to measure performance in terms of better versus worse. Value maximization theory: managers should have a criterion for evaluating performance and deciding between alternatives, and that criterion should be maximization of the long -term market value (including equity, debt, and preferred stock) of the firm. Provides m anagers with a singl e objective. Firm and social value: 200 years" worth of work in economics and finance indicates that social welfare is maximized when all firms in an economy attempt to maximize their own total firm value. Value is created whenever a firm produces an output that is valued by its customers at more than the value of the inputs it consumes. Stakeholder theory: managers should make decisions that take account of the interests of all stakeholders in a firm, including financial claimholders, employees, customers, and communities.
