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- 1. The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare.
- 2. So companies investing well grow, enriching themselves and shareholders alike, and ensure competitiveness; companies investing poorly shrink, resulting, perhaps, in the replacement of management.
- 3. In short, stock market performance and the company’s financial performance are inexorably linked.
- 4. They assume that they’re using their shareholders’ resources efficiently if the company’s performance---especially ROE and earnings per share --- is good and if the shareholders don’t rebel.
- 5. They assume that the stock market automatically penalizes any corporation that invests its resources poorly.