Proceedings of the International Conference on Logistics, Engineering, Management and Computer Science

The Fallacies of Corporate Investment Appraisal: A discussion of Share Price Maximization

Authors
Xue Wang
Corresponding Author
Xue Wang
Available Online July 2015.
DOI
https://doi.org/10.2991/lemcs-15.2015.186How to use a DOI?
Keywords
Share price maximization; Company objective; Market efficiency; Investment decision; Net Present Value
Abstract
For a long time, share price growth has been regarded as the primary benchmark of success in management decision-making for listed enterprises. However, this viewpoint may lead to bias of the management objective, underinvestment in capital budgeting, and inappropriate reward scheme for management. Based on the fundamental theory of corporate finance, the paper tends to find out the fallacies of share price maximization theory and some inappropriate criteria for investment appraisal. The theory of Capital Market Efficiency, Capital Structure, equations of Net Present Value and decision making criteria such as Payback and Internal Rate of Return will be used to support the analysis. The paper illustrates that although share price has important effects on financial management of a listed corporate, it may be misleading and cause fallacies in management. Some frequently used criteria may result in mistakes in investment decision making. It is important that managers pursue a valid objective and make investment decisions based on rational criteria. In summary, this paper gives financial managers general suggestions on corporate goal setting and capital budgeting but still the problems can be solved by further studies.
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Proceedings
International Conference on Logistics Engineering, Management and Computer Science (LEMCS 2015)
Part of series
Advances in Intelligent Systems Research
Publication Date
July 2015
ISBN
978-94-6252-102-5
ISSN
1951-6851
DOI
https://doi.org/10.2991/lemcs-15.2015.186How to use a DOI?
Open Access
This is an open access article distributed under the CC BY-NC license.

Cite this article

TY  - CONF
AU  - Xue Wang
PY  - 2015/07
DA  - 2015/07
TI  - The Fallacies of Corporate Investment Appraisal: A discussion of Share Price Maximization
BT  - International Conference on Logistics Engineering, Management and Computer Science (LEMCS 2015)
PB  - Atlantis Press
SP  - 941
EP  - 945
SN  - 1951-6851
UR  - https://doi.org/10.2991/lemcs-15.2015.186
DO  - https://doi.org/10.2991/lemcs-15.2015.186
ID  - Wang2015/07
ER  -