CRITICAL REVIEW

Critical Review on Shareholder Returns and Corporate Law

Table of Contents

Introduction2

Maximization of Shareholder Returns2

Rationale behind the Concept2

Corporate Law2

Vitality3

Shareholder Returns3

Stakeholder or Shareholder4

Social Responsibility and Investors4

Social Welfare and Corporate law5

Corporate Governance5

Various Views on Corporate Law and Shareholders6

Difficulties6

Law and Economics6

Small and Large Organizations6

Conclusion7

Critical Review on Shareholder Returns and Corporate Law

Introduction

The model making shareholder value the single indicator of performance management is the contractual approach of English companies. The concept of corporate law and shareholder value maximization in financial terms goes together (Kraakman, Armour, & Davies, 2009, pp. 18). The company belongs to the shareholder who elects the leaders and delegates authority to manage the business to maximize shareholder returns. The objective of creating shareholder value does not bring any concession to relations with employees, contractors or consumers who are well designed purely contractual. It should be emphasized that the concept of shareholder value has emerged along with that of corporate law. Kraakman et al. (2009) has categorically defined that there is a strong relations between corporate law and shareholder returns in financial terms

Maximization of Shareholder Returns

The concept of shareholder value is indeed based on the idea that capital should have a value greater than the debt. This idea goes against the notion of equity investment made ??by the shareholder which compares the performance of its shares to other types of long-term savings, which takes the highest risk without consideration for this aspect. It reflects the realization of the capital, where shareholder equity is actually the most subordinated debt.

Why do companies need to focus its activities to increase shareholder value as a major corporate law objective? Many will say: "We are not going to sell the business, especially in times of crisis, when the price of an adequate share is virtually non-existent. Why do we need to focus on shareholder value? It is better to focus on the effectiveness of current activities on the problems of liquidity.”

Rationale behind the Concept

There are various reasons behind it. The shareholder value of the company provides an integrated assessment of the company's attractiveness to investors, which is especially important in times of crisis, with limited availability of bank credit as a funding source. In the simplest version of the company's perception, shareholder value is the capacity that how much the potential investor is willing to acquire from a company or a significant share in it. This decision is based on expectations of return on investments (Demb & Neubauer, 1992, pp. 74). It also reflects the effectiveness of current activities of the company, cash flows generated by the company, business risks, relations with stakeholder and the real value of company assets. Therefore, everything that happens in the company reflects in its stock price. In the process of managing these chunks of business for maintaining the stock price, the company satisfies the corporate law goals.

Corporate Law

Corporate Law is a sub part of civil law. Rules included in it are aimed at resolving public relations for the organization, operation of enterprises, and organizations advocacy of civil law subjects. It aims to build a legal framework to maximize ...