The Efficient Norm for Corporate Law: A Neotraditional Interpretation of Fiduciary Duty
Year: 1999
Type: article
Abstract: This paper argues that a hypothetical contract analysis of fiduciary duty requires a corporate law norm that the total value of financial claims against the firm be maximized. This conclusion follows from using rational investors complying with the CAPM mandate as the parties making the hypothetical contract under which resources are committed to the firm. The analysis shows some inadequacies in the "shareholder value maximization" norm that is assumed in most corporate law literature. The norm of maximizing firm value fits best with an abstract conception of fiduciary duty in which the duty is owed to the corporation, rather than to shareholders or any other particular class of security holders. Adopting this conception dissolves many of the fiduciary duty puzzles posed by derivative securities, such as those stressed by Hu.
Source: Michigan Law Review
DOI: 10.2307/1290199
Author: Thomas A. Smith
Institution: University of San Diego
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121760465