Shareholder Value Theory

Shareholder Value Theory is the idea that a company's primary goal is to maximize the wealth of its shareholders—that is, the people who own shares in the company. This means making decisions that increase the company's stock price and overall profitability, leading to higher returns for investors. The theory emphasizes that focusing on shareholder interests aligns management’s efforts with those of the owners, promoting efficiency and growth. However, it also raises questions about the importance of balancing broader stakeholder concerns like employees, customers, and communities.