Firms do, of course, have other objectives—in particular. The managers who make the actual decisions are interested in their own personal satisfaction, in their employees’ welfare, and in the good of the community and of society at large. Still, for the reasons set forth in the following sections, stock price maximization is the most important objective for most corporations.
If a firm attempts to maximize its stock price, is this good or bad for society? In general, it is good. Aside from such illegal actions as attempting to form monopolies, violating safety codes, and failing to meet pollution requirements, the same actions that maximize stock prices also benefit society. The reason of that case is to a large extent, the owners of stock are society. Seventy-five years ago this was not true, because most stock ownership was concentrated in the hands of a relatively small segment of society, comprised of the wealthiest individuals. Since then, there has been explosive growth in pension funds, life insurance companies, and mutual funds. These institutions now own more than 57 percent of all stock.
In addition, more than 48 percent of all U.S. households now own stock directly, as compared with only 32.5 percent in 1989. Moreover, most people with a retirement plan have an indirect ownership interest in stocks. Thus, most members of society now have an important stake in the stock market, either directly or indirectly. Therefore, when a manager takes actions to maximize the stock price, this improves the quality of life for millions of ordinary citizens.