Of course, like virtually all theory, the value maximization model involves some simplification and abstraction from

reality. Is the model realistic enough to provide useful insight into the managerial decisions making process? Most mangers take their own welfare into account when making decision, evidence sturdily indicates that market pressures provide a strong incentive for managers to act in accord with the dictates of economic efficiency. Furthermore, managers who pursue policies unfavorable to stockholder interest run the risk of being replaced following stockholder unfriendly takeovers. I dont feel that the existence of firms is due to the economic advantages of such organizations. It is not reasonable to expect firms to voluntarily undertake any action that is truly detrimental to its owners or managers. When such actions deemed enviable, regulation by society will no doubt be required. It should be emphasized that this does not mean that firms cannot be expected to undertake socially responsible activity. With such activities it can be expected to have a beneficial effect on sales, taxes, labor relations, production costs, and so on. In these instances, the firm could well be expected to undertake such activities voluntarily. By understanding the economics of business decisions, one is in a much better position to understand the motivation behind managerial decisions and to analyze the effects of various constraints and incentives designed to modify business practices.

References: Jensen, M. (2000). Value Maximization and Stakeholder Theory. Retrieved on April 24, 2013 from http://hbswk.hbs.edu/item/1609.html Thomas, C. & Maurice, S. (2008) Managerial Economics, 9th edition. Boston: McGraw-Hill Companies.