Even in the most extreme version of the "shareholder value" philosophy, the goal is not to maximize share price alone. The goal is to maximize total return way that is sustainable within the timeframe that the major of (voting) shareholders consider relevant.
The simplest counter-example is the existence of dividends. Any time a company issues a dividend, they could often instead buy back shares and achieve a higher share price at some instantaneous point in time. But in many cases that would come at the expense of total shareholder return, which shareholders obviously care more about than price alone.
There are also all sorts of hilariously destructive financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero. Eg: take on as much debt as possible, sell all of your assets, layoff all of your employees, buy back all shares at any price, and declare bankruptcy. There might even be legal ways of doing this. Firms never do those things except on long enough time-frames with big enough personalities; GE is the poster-child here.
Most firms, especially large ones, have a complex set of strategic considerations. Short term share price plays an outsized role in decision making, imo, but it's almost never the entire objective function of a firm.
> The simplest counter-example is the existence of dividends.
No. All professional valuation models account for dividends and buybacks. Both can and do effect share price.
> financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero
Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame.
I am not advocating for the correctness or perfectness of the current incentive structure. Rather, I am pointing out that any company which is not seeking to improve their share price will very quickly be targeted by short sellers and activists. And thus, management will change priorities to align with increasing shareholder returns or they will be replaced.
>> The simplest counter-example is the existence of dividends.
> No. All professional valuation models account for dividends and buybacks. Both can and do effect share price.
This is another way of saying that professional valuation models account for the fact that it is NOT true that the "incentive structure of public companies is only to maximize share price".
> Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame.
Okay. But that's my whole point! Over WHAT time frame is the corporation optimizing total returns, and how are those returns DISTRIBUTED to share holders, and even then, WHICH shareholders hold the decision-making power?
Share price isn't the whole story, and isn't even the whole story if you consider variable time frames.
This is obviously not true.
Even in the most extreme version of the "shareholder value" philosophy, the goal is not to maximize share price alone. The goal is to maximize total return way that is sustainable within the timeframe that the major of (voting) shareholders consider relevant.
The simplest counter-example is the existence of dividends. Any time a company issues a dividend, they could often instead buy back shares and achieve a higher share price at some instantaneous point in time. But in many cases that would come at the expense of total shareholder return, which shareholders obviously care more about than price alone.
There are also all sorts of hilariously destructive financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero. Eg: take on as much debt as possible, sell all of your assets, layoff all of your employees, buy back all shares at any price, and declare bankruptcy. There might even be legal ways of doing this. Firms never do those things except on long enough time-frames with big enough personalities; GE is the poster-child here.
Most firms, especially large ones, have a complex set of strategic considerations. Short term share price plays an outsized role in decision making, imo, but it's almost never the entire objective function of a firm.