Objective Function of a Non-Price-Taking Firm with Heterogeneous Shareholders

Abstract

I derive the objective function of a firm with heterogeneous shareholders. In contrast to Fisher separation theorem, I drop the price-taking assumption. Therefore, shareholders have no unanimous preferences for profit maximization. I allow shareholders to act strategically by omitting the conditional sincerity assumption and by accounting for possible correlation in their votes. I derive the exact form of the objective function and provide the equilibrium existence conditions. The resulting objective function can be approximated by a weighed sum of shareholders portfolios' profit. Shareholder groups with positive within group correlation carry greater weight.

Keywords: Firm's objective, Heterogeneous shareholders, Common Ownership, Correlated voting

JEL Classification: D21, D43, D70, G34, L10