The paper "Shareholder Primary Theory" is a great example of a report on finance and accounting. In recent years, shareholder value or shareholder dominance has been viewed as an aspect of corporate governance. There has been an argument that the increase in shareholder primacy usually has a harmful impact on the interests of firm employees. This argument suggests that under a particular form of capitalism, and especially that which distinguishes market-based other than relational styles of production schemes, the shareholder's interests are regarded as paramount by directors above and over those of all other stakeholders like employees.
Therefore this view implies that corporate managers will tend to favor the short term shareholders' financial interests or shareholder value driven by capital markets fixed on share price together with short term terms. Shareholder primary theory The shareholder primacy theory views the maximization of shareholder value as the major way of sustaining the financial growth and survival of the corporation. The conventional finance model places the maximization of shareholder wealth as the principal goal of corporate management. This model is built on the classic competitive markets.
Fundamentally, there is an assumption that all participants who make a transaction with the firm including customers, lenders, suppliers, and employees are viewed as willing partakers in free and competitive market and are wholly compensated at fair market prices for their supplies or services or obtain fairly valued services or products for the costs they pay. The shareholders are distinctive since they are outstanding participants and do not possess prior implicit or explicit claims. They may add to their capital only after gratifying earlier claims of all other participants. They put up with all risks of failure and thus it is the sole fair that they receive rewards.
This paradigm also presumes that there are no externalities or any damage or harm posed on any participant who is not in the transaction (Eugene, 2002).
Eugene, B., (2002) Financial Management: Theory and Practice, 10th Edition. Harcourt: Harcourt College Publishers.
Donna C., (2007). Stockholders and Stakeholders: The battle for Control of the
Corporation. Cato Journal, 27 (1); 1-22.
Hillman, J. & Keim, D., (2001). Shareholder value, stakeholder management, and social issues: Strategic Management Journal, 22 (2): 125-139.
Jensen, M. C (2001). Value Maximization, Stakeholder Theory, and the Corporate Objective Function. Journal of Applied Corporate Finance, 14 (3): 8-21.
Gioia, D., (2003). Practicability, Paradigms, and Problems in Stakeholder Theorizing.
Academy of Management Review 24(2): 228-32.
Clarkson, E., (2002). A Stakeholder Framework for Analysing and Evaluating Corporate Social Performance. Academy of Management Review, 20(1): 92-117.