The Fallacies of Corporate Investment Appraisal: A discussion of Share Price Maximization
Available Online July 2015.
- https://doi.org/10.2991/lemcs-15.2015.186How to use a DOI?
- Share price maximization; Company objective; Market efficiency; Investment decision; Net Present Value
- 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.
- 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 -