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

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    Sabarwal_Value_2007.pdf (882.0Kb)
    Issue Date
    2007
    Author
    Sabarwal, Tarun
    Publisher
    Walter de Gruyter
    Type
    Article
    Article Version
    Scholarly/refereed, publisher version
    Metadata
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    Abstract
    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.
    Description
    This is the publisher's version. Also available electronically from: http://dx.doi.org/10.2202/1935-1704.1334.
    URI
    http://hdl.handle.net/1808/8816
    DOI
    https://doi.org/10.2202/1935-1704.1334
    Collections
    • Economics Scholarly Works [183]
    Citation
    Sabarwal, Tarun (2007): “Value Maximization As An Ex-Post Consistent Firm Objective When Markets are Incomplete,” The B.E. Journal of Theoretical Economics, 7(1) (Topics), Article 4. http://dx.doi.org/10.2202/1935-1704.1334

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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