{"title":"Objective Myopia: Why Executives Fail to Secure the Creation of Maximum Shareholder Value and Sustainable Profitability in the Passage of Time and Change in the Economic Environment","authors":"Marionito Marquez","doi":"10.2139/ssrn.3602331","DOIUrl":"https://doi.org/10.2139/ssrn.3602331","url":null,"abstract":"The shareholder wealth maximization theory has been widely considered as the primary objective and performance measure of executives and the business organization they run on behalf of its shareholders around the world and yet many executives’ understandings of the primary objective can be observed myopic. What has been myopically understood by many executives is the primary objective of the shareholders for which they financed the company: To secure the creation of maximum shareholder value and sustainable profitability or to make money as much as possible regardless of the product, service, business, industry or market the company may operate in the passage of time and change in the economic environment as long as the primary objective will be legally achieved. Why? Because as we have shifted the global economy from barter to the use of currency, we are rich or poor according to the degree in which we can afford to enjoy the necessaries, conveniences, and amusements of human life using money. As Alfred Sloan Jr., the legendary CEO of General Motors, explained the primary objective of the company in his own words<br><br>“The strategic aim of business is to earn a return on capital, and if in any particular case the return in the long run is not satisfactory, then the deficiency should be corrected, or the activity abandoned for a more favorable one.”<br><br>From Alfred Sloan Jr.’s perspective, it is very clear that the business activity or product is just one of the means to make money in the world economy and it should be abandoned for a better alternative if the return on capital is no longer satisfactory or if the deficiency cannot be corrected such as in the case obsolescence.","PeriodicalId":395641,"journal":{"name":"POL: Unrelated Diversification (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131295755","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Shopping for Information? Diversification and the Network of Industries","authors":"F. Anjos, Cesare Fracassi","doi":"10.2139/ssrn.1728525","DOIUrl":"https://doi.org/10.2139/ssrn.1728525","url":null,"abstract":"We propose and test a view of corporate diversification as a strategy that exploits internal information markets, by bringing together information that is scattered across the economy. First, we construct an interindustry network using input-output data, to proxy for the economy's information structure. Second, we introduce a new measure of conglomerate informational advantage, named \"excess centrality,\" which captures how much more central conglomerates are relative to specialized firms operating in the same industries. We find that high-excess-centrality conglomerates have greater value, and produce more and better patents. Consistent with the internal-information-markets view, we also show that excess centrality has a greater effect in industries covered by fewer analysts and in industries where soft information is important. \u0000 \u0000This paper was accepted by Gustavo Manso, finance.","PeriodicalId":395641,"journal":{"name":"POL: Unrelated Diversification (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123927376","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Were the Acquisitive Conglomerates Inefficient?","authors":"Peter G. Klein","doi":"10.2139/ssrn.54246","DOIUrl":"https://doi.org/10.2139/ssrn.54246","url":null,"abstract":"This article challenges the conventional wisdom that the 1960s conglomerates were inefficient. I offer valuation results consistent with recent event-study evidence that markets typically rewarded diversifying acquisitions. Using new data, I compute industry-adjusted valuation, profitability, leverage, and investment ratios for 36 large, acquisitive conglomerates from 1966 to 1974. During the early 1970s, the conglomerates were less valuable and less profitable than stand-alone firms, favoring an agency explanation for unrelated diversification. In the 1960s, however; conglomerates were not valued at a discount. Evidence from acquisition histories suggests that conglomerate diversification may have added value by creating internal capital markets. Copyright 2001 by the RAND Corporation.","PeriodicalId":395641,"journal":{"name":"POL: Unrelated Diversification (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128862074","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Future of Business Groups in Emerging Markets: Long Run Evidence from Chile","authors":"T. Khanna, K. Palepu","doi":"10.2139/ssrn.143491","DOIUrl":"https://doi.org/10.2139/ssrn.143491","url":null,"abstract":"We demonstrate variation in the extent to which firms benefit from their affiliation with Chilean business groups in the 1988-1996 period. The net benefits of unrelated diversification are positive if group diversification exceeds a threshold level, though this threshold increases with time. We find evidence of non-diversification related group benefits, which atrophy over time. We conjecture that the evolution of institutional context alters the value creating potential of business groups, though it does so slowly.","PeriodicalId":395641,"journal":{"name":"POL: Unrelated Diversification (Topic)","volume":"343 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133818468","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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