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Value Maximization as an Ex-Post Consistent Firm Objective When Markets are Incomplete

  • Tarun Sabarwal
Veröffentlicht/Copyright: 16. Januar 2007
The B.E. Journal of Theoretical Economics
Aus der Zeitschrift The B.E. Journal of Theoretical Economics Band 7 Heft 1

In competitive economies with private firm ownership, incomplete markets, and firm shareholders changing over time, several firm objectives have been proposed. Some are useful to understand efficiency of equilibria, and others are explicitly consistent with majority shareholder control or collective choice rules, but it is not always clear if versions of each type are consistent with versions of the other type. This paper shows that ex-post, value maximizing rules, (including those proposed by Dreze, and Grossman and Hart,) are consistent with shareholder preferences in such economies; that is, along the equilibrium path, in every period and state of the world, every coalition of a firm's shareholders in that period and state approves a value maximizing production plan. This result applies to cases when shareholders within a firm and across firms can form coalitions, and when stock trading can be ex-dividend or cum-dividend, and with a combination of both. This result does not resolve the problem of inefficiency of stock market equilibria, or that of ex ante disagreement among shareholders. It can help understand when firm objectives with some desirable properties are consistent with a particular version of shareholder control, and it provides a stability criterion (in terms of robustness to shareholder coalitions) for organizing productive resources in such economies.

Keywords: incomplete markets; firm objective; value maximization; shareholder preferences
Published Online: 2007-1-16

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

Artikel in diesem Heft

  1. Topics Article
  2. Equilibria in Multi-Unit Discriminatory Auctions
  3. A Note on Generating Globally Regular Indirect Utility Functions
  4. Value Maximization as an Ex-Post Consistent Firm Objective When Markets are Incomplete
  5. On Corruption and Institutions in Decentralized Economies
  6. Best Agendas in Multi-Issue Bargaining
  7. First-Degree Discrimination by a Duopoly: Pricing and Quality Choice
  8. Interbank Competition with Costly Screening
  9. Taxes versus Permits in a Two-Stage Duopoly
  10. The Many Faces of Rationalizability
  11. Cross and Double Cross: Comparative Statics in First Price and All Pay Auctions
  12. Price Interventions in a Cournot Oligopoly with a Dominant Firm
  13. Mixed Oligopoly under Demand Uncertainty
  14. Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges
  15. Tax Differentials and the Segmentation of Networks of Cooperation in Oligopoly
  16. When Does Competition Lead to Efficient Investments?
  17. Herding with Costly Observation
  18. Asymmetric Nash Bargaining with Surprised Players
  19. Competing Gatekeepers
  20. Monotone Comparative Statics in Ordered Vector Spaces
  21. Pareto Optima and Competitive Equilibria with Moral Hazard and Financial Markets
  22. Decreasing Relative Risk Premium
  23. Advertising as a Distortion of Social Learning
  24. Pricing Behavior of Multiproduct Retailers
  25. Auctions with Opportunistic Experts
  26. A Consistent Multidimensional Generalization of the Pigou-Dalton Transfer Principle: An Analysis
  27. On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies
  28. Contributions Article
  29. Information Goods Upgrades: Theory and Evidence
  30. Staged Financing with a Variable Return
  31. A Decentralized Market for a Perishable Good
  32. Effective Scrappage Subsidies
  33. Sunspot Rational Beliefs Structures, Equilibria and Excess Volatility
  34. Repeated Auctions with the Right of First Refusal
  35. A Herding Perspective on Global Games and Multiplicity
  36. Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions
  37. Oligopoly, Endogenous Monopolist and Product Quality
  38. When Can Manipulations be Avoided in Two-Sided Matching Markets? -- Maximal Domain Results
  39. Free Cash Flow and Managerial Entrenchment: A Continuous-Time Stochastic Control-Theoretic Model
  40. Collective Punishments: Incentives and Examinations in Organisations
  41. Von Neumann-Morgenstern Stable Set Bridges Time-Preferences to the Nash Solution
  42. Information-Invariant Equilibria of Extensive Games
  43. Contests with Ties
  44. Local Network Effects and Complex Network Structure
  45. Advances Article
  46. Relating Network Structure to Diffusion Properties through Stochastic Dominance
  47. Firm Size, Productivity, and Manager Wages: A Job Assignment Approach
  48. Rule-Based and Case-Based Reasoning in Housing Prices
  49. Market Entry Dynamics with a Second-Mover Advantage
  50. The Compensation Principle and the National Income Test
https://doi.org/10.2202/1935-1704.1334
Schlagwörter für diesen Artikel
incomplete markets; firm objective; value maximization; shareholder preferences

Artikel in diesem Heft

  1. Topics Article
  2. Equilibria in Multi-Unit Discriminatory Auctions
  3. A Note on Generating Globally Regular Indirect Utility Functions
  4. Value Maximization as an Ex-Post Consistent Firm Objective When Markets are Incomplete
  5. On Corruption and Institutions in Decentralized Economies
  6. Best Agendas in Multi-Issue Bargaining
  7. First-Degree Discrimination by a Duopoly: Pricing and Quality Choice
  8. Interbank Competition with Costly Screening
  9. Taxes versus Permits in a Two-Stage Duopoly
  10. The Many Faces of Rationalizability
  11. Cross and Double Cross: Comparative Statics in First Price and All Pay Auctions
  12. Price Interventions in a Cournot Oligopoly with a Dominant Firm
  13. Mixed Oligopoly under Demand Uncertainty
  14. Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges
  15. Tax Differentials and the Segmentation of Networks of Cooperation in Oligopoly
  16. When Does Competition Lead to Efficient Investments?
  17. Herding with Costly Observation
  18. Asymmetric Nash Bargaining with Surprised Players
  19. Competing Gatekeepers
  20. Monotone Comparative Statics in Ordered Vector Spaces
  21. Pareto Optima and Competitive Equilibria with Moral Hazard and Financial Markets
  22. Decreasing Relative Risk Premium
  23. Advertising as a Distortion of Social Learning
  24. Pricing Behavior of Multiproduct Retailers
  25. Auctions with Opportunistic Experts
  26. A Consistent Multidimensional Generalization of the Pigou-Dalton Transfer Principle: An Analysis
  27. On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies
  28. Contributions Article
  29. Information Goods Upgrades: Theory and Evidence
  30. Staged Financing with a Variable Return
  31. A Decentralized Market for a Perishable Good
  32. Effective Scrappage Subsidies
  33. Sunspot Rational Beliefs Structures, Equilibria and Excess Volatility
  34. Repeated Auctions with the Right of First Refusal
  35. A Herding Perspective on Global Games and Multiplicity
  36. Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions
  37. Oligopoly, Endogenous Monopolist and Product Quality
  38. When Can Manipulations be Avoided in Two-Sided Matching Markets? -- Maximal Domain Results
  39. Free Cash Flow and Managerial Entrenchment: A Continuous-Time Stochastic Control-Theoretic Model
  40. Collective Punishments: Incentives and Examinations in Organisations
  41. Von Neumann-Morgenstern Stable Set Bridges Time-Preferences to the Nash Solution
  42. Information-Invariant Equilibria of Extensive Games
  43. Contests with Ties
  44. Local Network Effects and Complex Network Structure
  45. Advances Article
  46. Relating Network Structure to Diffusion Properties through Stochastic Dominance
  47. Firm Size, Productivity, and Manager Wages: A Job Assignment Approach
  48. Rule-Based and Case-Based Reasoning in Housing Prices
  49. Market Entry Dynamics with a Second-Mover Advantage
  50. The Compensation Principle and the National Income Test
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