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Corporations and finance

In: Evolution of the Corporation in the United States

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Abstract

The idea that the primary corporate purpose is to increase shareholder wealth arose early in the twentieth century. Separation of management from ownership emphasizes the role of boards of directors. Law requires directors to act in the best interests of the corporation. Enunciated in Dodge et al. v. Ford Motor Company the requirement has been embedded in the Model Business Corporation Act followed by many states. The business judgment rule immunizes directors from challenges for decisions made for the best interests of the corporation. Typically, the best interests of the corporation are equated with increasing shareholder wealth. This has resulted in the use of corporate revenues, including from tax cuts and borrowing, for stock buybacks increasing the value of stock without changing productive capacity.

Suggested Citation

  • ., 2021. "Corporations and finance," Chapters, in: Evolution of the Corporation in the United States, chapter 6, pages 102-113, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19164_6
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    File URL: https://www.elgaronline.com/view/9781789904956.00011.xml
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    Cited by:

    1. Giraldo, Iader & Turner, Philip, 2022. "The Dollar Debt of Companies in Latin America: the warning signs," National Institute of Economic and Social Research (NIESR) Discussion Papers 534, National Institute of Economic and Social Research.

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    Keywords

    Economics and Finance; Law - Academic;

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