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Finance questions Name Institutions Professor Course Date What does it mean to say that managers should maximize shareholders' wealth "subject to ethical constraints"? Solution This means that the manager should do what he or she can to make the most profit for the share holders but not to the extent that he or she does anything that could be considered unethical such as fire a person who makes over minimum wage in order to hire someone at minimum wage for that reason alone. Its businesses for "we are going to attempt to run the corporate besides as conceivable collectively as minimizing hazards as much as reasonably conceivable." So its businesses for we profit and something that goes against your belief system. What if you are ethically against smoking but think investing in a cigarette business makes financial sense. References Hillman A. J. & Keim G. D. (2001). Shareholder value stakeholder management and social issues: what's the bottom line?. Strategic management journal 125-139. Jensen M. C. (2002). Value maximization stakeholder theory and the corporate objective function. Business ethics quarterly 235-256. Jones T. M. Felps W. & Bigley G. A. (2007). Ethical theory and stakeholder-related decisions: The role of stakeholder culture. Academy of Management Review 32(1) 137-155. Lehn K. & Poulsen A. (1989). Free cash flow and stockholder gains in going private transactions. The Journal of Finance 44(3) 771-787. [...]
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What does it mean to say that managers should maximize shareholders' wealth "subject to ethical constraints"? What ethical considerations might enter into decisions that result in cash flow and stock price effects that are valued lower than they might otherwise have been?
