The corporate goal issue in the post-transition economies and its possible implications for financial management

Abstract

After acknowledging the advantages of the shareholder wealth maximization objective, a sample of companies from four post-transition economies (Slovenia, Croatia, Serbia and Macedonia) is analyzed with regards to the extent to which this objective has been accepted by the company managers. The analysis is done as a survey of the data published in their websites and the results show that apart from the progress made in terms of transparency and corporate governance, the value maximization objective is only occasionally recognized as an ultimate corporate goal. Although there are differences among the countries, in general, the company managers seem to have not yet developed the sense of utmost accountability towards their shareholders. This situation is likely to have implications on the decision-making process, especially in the field of financial management, since many of its principles are based on value maximization as ultimate objective and its absence might cast doubt on the soundness of the decisions made under such circumstances. This is especially necessary to have in mind with regards to the capital structure, capital budgeting decisions, dividend policy and the most striking example is the portfolio management decisions made under the assumption of aligned interests between the managers and shareholders, when this is unlikely to be true.