Jump to ContentJump to Main Navigation
Capital FailureRebuilding Trust in Financial Services$
Users without a subscription are not able to see the full content.

Nicholas Morris and David Vines

Print publication date: 2014

Print ISBN-13: 9780198712220

Published to Oxford Scholarship Online: October 2014

DOI: 10.1093/acprof:oso/9780198712220.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 27 January 2020

Systemic Harms and the Limits of Shareholder Value

Systemic Harms and the Limits of Shareholder Value

Chapter:
(p.234) 11 Systemic Harms and the Limits of Shareholder Value
Source:
Capital Failure
Author(s):

John Armour

Jeffrey N. Gordon

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198712220.003.0011

The generally accepted framework for analysing corporate law and governance implies that those running a corporation should seek to maximise shareholder value as measured by the stock price. However for share price maximisation to enhance social welfare, a range of mechanisms—contracts, liability rules, and regulation—need to ensure that any costs which a firm’s activities impose on other parties are internalised into the profit function. The extent to which traditional private law mechanisms—in particular, the law of tort—fail to internalise ‘economic’ or indirect harms has been underappreciated. The case of banks illustrates dramatically the problems caused by the maximisation of shareholder value, because bank risk taking has a systemic, as opposed to firm-specific, character. The chapter proposes a corporate governance solution, using ‘old-fashioned’ liability rules to affect the pay-offs of those controlling the firm, as opposed to external measures designed to affect the firm’s profit function.

Keywords:   shareholder value, tort law, systemic effects, corporate governance, liability rules, director’s liability, financial services

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .