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How the Neoclassical Market Ideology Destroys the Market: Shareholder Value Maximization as a Self-Defeating Prophecy

  • Eduard Braun EMAIL logo
Published/Copyright: September 26, 2024

Abstract

According to the widespread, neoclassical market ideology, market prices are not simply helpful, yet imperfect, reference points for consumers and profit-seeking enterprises. Rather, they are interpreted as reflecting the true value of goods. The hypothetical end result of the market process – the market equilibrium – is thereby assumed to be an ever-satisfied condition of the market economy. Based on this unrealistic presupposition, this market ideology maintains that the performance of managers can be evaluated from the prices of the (net) assets they control and, in the case of publicly traded companies, share prices. The share prices supposedly reflect the value that managers create for shareholders and, thus, the economy as a whole. If this were actually the case, the maximization of so-called shareholder value would be a socially beneficial goal for managers. The present paper demonstrates, however, that the ongoing re-orientation of corporate governance towards the maximization of values (as revealed by share prices) instead of profits (as determined by the accounting system) destroys the very market processes that coordinate business activity and allocate resources in the market economy.

JEL Classification: B41; L21; P12

Corresponding author: Eduard Braun, Institute of Management and Economics, Clausthal University of Technology, Julius-Albert Straße 2, 38678, Clausthal-Zellerfeld, Germany, E-mail:

Acknowledgments

I would like to thank Professor Roland Menges and the participants of the research seminar at the Privatuniversität Schloss Seeburg for their helpful comments on earlier versions of this paper.

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Received: 2022-05-31
Accepted: 2024-09-05
Published Online: 2024-09-26

© 2024 CONVIVIUM, association loi de 1901

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