A measure of total firm performance: new insights for the corporate objective

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dc.contributor.authorBelghitar, Yacine
dc.contributor.authorClark, Ephraim
dc.contributor.authorKassimatis, Konstantino
dc.date.accessioned2019-04-29T11:24:50Z
dc.date.available2019-04-29T11:24:50Z
dc.date.issued2018-07-31
dc.description.abstractBecause heterogenous and unknown shareholder utility functions make it difficult to define a corporate objective common to all shareholders based on utility, the traditional theory of the firm concentrates on wealth maximization as the main measure of performance. Using the concept of ranked marginal utility, we develop a multi-dimensional measure of firm performance (TPM) that reflects the preferences of all risk averse shareholders towards all aspects of risk. We verify empirically that this is, in fact, the case for the first four moments of a large sample of US stocks over the period 2002–2010. Then, using the manager/shareholder agency conflict as the analytical framework, we show that TPM is a reliable, multi-dimensional performance measure and that one dimensional performance measures, such as mean returns, volatility or Tobin’s Q can lead to erroneous inference. By including shareholder preferences towards risk in the measure of firm performance as the corporate objective, we bring together the corporate finance literature and the literature on portfolio investment theory and practice.en_UK
dc.identifier.citationBelghitar Y, Clark E, Kassimatis K. (2019) A measure of total firm performance: new insights for the corporate objective. Annals of Operations Research, Volume 281, Issue 1-2, October 2019, pp. 121-141en_UK
dc.identifier.cris21106648
dc.identifier.issn0254-5330
dc.identifier.urihttps://doi.org/10.1007/s10479-018-2983-z
dc.identifier.urihttp://dspace.lib.cranfield.ac.uk/handle/1826/14116
dc.language.isoenen_UK
dc.publisherSpringeren_UK
dc.rightsAttribution 4.0 International*
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/*
dc.subjectCorporate objectivityen_UK
dc.subjectUtility maximizationen_UK
dc.subjectFirm performanceen_UK
dc.subjectManagerial ownershipen_UK
dc.subjectAgency theoryen_UK
dc.titleA measure of total firm performance: new insights for the corporate objectiveen_UK
dc.typeArticleen_UK

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