ABSTRACT
This chapter incorporates an economic analysis of law to re-examine shareholder wealth maximisation (SWM) as a corporate objective. SWM not only discourages various stakeholders from making firm-specific investments, but also causes significant negative externalisation as well as short-termism. In short, SWM is by no means the best approach for social wealth maximisation, and granting special treatment cannot ensure the enhancement of social welfare. Historically, the concept of proprietorship, in other words the traditional logic of property, was the strongest justification for SWM. Both the traditional and modern proprietary justifications are not convincing, and contractarian theory – including agency theory – also fails to capture the essence of corporate governance relationships. Although an agency perspective could help to understand modern companies in many aspects, it is wrong and perilous to simply equate the relationships within the company to an agency relationship. Subsequently, the residual claimant argument and economic efficiency argument developed from agency theory are also flawed.
