What is the fundamental purpose of corporations

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Unformatted text preview: s the fundamental purpose of corporations? Managerial performance should be evaluated and rewarded based on the Balanced Scorecard o Strategic approach and performance management system Four perspectives – financial, customer, business process, learning and growth Accept maximization of the value of the firm as the criterion for making the requisite tradeoffs among its stakeholders What is the fundamental purpose of corporations? Should the firm have a single-valued objective function? What arguments suggest value maximization as the ‘single value’? Price theory (or the theory of competitive equilibrium): When people value a good or service highly, the demand for the product is high and the market produces a high price. This is a signal to producers: if high prices create profit opportunities (i.e. if revenue exceeds opportunity cost), firms produce the good. This is efficient since the opportunity cost reflects the foregone profit from using the resources to produce other goods, and a lower forgone profit implies a lower valuation of the other goods (i.e. a lower dema...
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This document was uploaded on 01/15/2014.

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