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The Relationship between the Stock Price of a Company and its Benefit to Society

There is an interesting relationship between a company’s stock price and its benefit to society. Fundamentally, money is a reflection of how others value a given thing, be it a new smartphone, a bag of groceries, or medical services. Thus, since a firm’s value is primarily acquired by providing high-quality goods and services to customers at a low cost, it stands to reason that maximizing the firm’s value directly translates to maximizing customers’ benefit. Brigham & Ehrhardt (2020) agree that, so long as the business does not act illegaly, maximizing a company’s stock value is good for the general society. However, the digression that there may be a conflict of interest between maximizing shareholder wealth and minimizing the harm done by doing so is important to consider.

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While in general the aforementioned relationship seems to hold in the majority of cases, in the U.S., at least, there may be exceptions. Brigham & Ehrhardt (2020) point to an example where a company can be sued for maintaining social initiatives if they are deemed too costly. There is an argument to be had here about the value of ethics, reputation, and short-term vs. long-term benefits. However, ultimately firms are known for the quality and price of what they offer to customers, rather than their ethical values. It is likely that while these factors come into play, they do so in extreme conditions — e. g. a major controversy or significant ethical violation. Thus, the regulations in other countries that focus on interests other than shareholders’ and U.S. B-Corps presents an interesting area for discussion on the balance between the interests of shareholders and other stakeholders. This is a very heartening notion, and it will be fascinating to learn more about it and watch this trend as it develops.

Reference

Brigham, E. F., & Ehrhardt, M. C. (2020). Financial Management: Theory & Practice, (16th ed.). Cengage.

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StudyCorgi. "The Relationship between the Stock Price of a Company and its Benefit to Society." April 2, 2022. https://studycorgi.com/the-relationship-between-the-stock-price-of-a-company-and-its-benefit-to-society/.

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StudyCorgi. 2022. "The Relationship between the Stock Price of a Company and its Benefit to Society." April 2, 2022. https://studycorgi.com/the-relationship-between-the-stock-price-of-a-company-and-its-benefit-to-society/.

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StudyCorgi. (2022) 'The Relationship between the Stock Price of a Company and its Benefit to Society'. 2 April.

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