On the maximization of shareholders' wealth: Evidence based on firm-specific financial characteristics

This paper focuses on the long-term firm-specific determinants of stock returns. The main goal of the investigation is to show which of the financial characteristics of a firm its management should concentrate on, when maximizing the wealth of the common shareholders. It is found that profitability, financial leverage, operating leverage and growth are important long-term determinants of firm value in the Finnish stock market. However, significant differences are observed between the measures applied to the same presumptive characteristics of the firm.