The Relation between Stakeholder Management, Firm Value, and CEO Compensation: A Test of Enlightened Value Maximization


  • Bradley W. Benson,

    1. Bradley W. Benson is an Assistant Professor in the Department of Economics and Finance in the College of Business at Louisiana Tech University in Ruston, LA.
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  • Wallace N. Davidson

    1. Wallace N. Davidson III is the Henry Rehn Research Professor of Finance at Southern Illinois University in Carbondale, IL.
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  • The authors thank the anonymous referee for many helpful and insightful comments. All errors remain the responsibility of the authors.


Whether firms pursue shareholder value maximization or the maximization of stakeholder welfare is a controversial issue whose outcomes seem irreconcilable. We propose that firms are likely to compensate their executives for pursuing the firm's goal be it shareholder value maximization or the maximization of stakeholder welfare. In this paper, we examine the correlation between firm value, stakeholder management, and compensation. We find that stakeholder management is positively related to firm value. However, firms do not compensate managers for having good relationships with its stakeholders. These results do not support stakeholder theory. We also find an endogenous association between compensation and firm value. Our results are consistent with Jensen's (2001) enlightened value maximization theory. Managers are compensated for achieving the firm's ultimate goal, value maximization. However, managers optimize interaction with stakeholders to accomplish this objective.