Preface

The economic world in which we currently live is dominated by the essential and indispen‐ sable presence of companies. The responsible management of these companies results in their good performance and this promotes welfare of our societies. Since 1937, when Ronald Coase published his seminal work on the nature of the firm, not a few have been the further theoretical and empirical developments that have sought to explain how to optimize the firm value.. These theoretical approaches have evolved from the classical, pragmatic micro‐ economics and the traditional industrial economy—more oriented toward the theory of markets and how resources are allocated to optimize results—to more integrated and holis‐ tic approaches such as behavioral economics, agency theory and the theory of the economics of transaction costs (which take the risk of removing some of the static assumptions of more traditional theories).

Such adjustments in the theory of the firm lead to incorporate more dynamic elements like the existence of information asymmetrically distributed among the interested parties, the opportunistic behavior among parties and their different motivations, and the existence of hidden costs in the formalization of contracts, among many other market imperfections.

All these theoretical bodies do not pursue but a question of substance: explain how the value of the firm is determined. Such a question is supported by the most important assumption in modern corporate finance: the maximization of the shareholders' wealth is the goal of the firm, which in other words is reflected in the maximization of the firm value. Consequently, brand new questions arise as a result. What variables determine the firm value? Are these determinants controllable or uncontrollable by the managers of the companies? Is the impact of corporate governance systems on the firm value symmetrical between different institution‐ al contexts? Do the financial reports affect the value of the firm? What role does corporate social responsibility play as a determinant of the firm value? These and other questions are developed and scrutinized in the seven chapters that constitute this book that has been writ‐ ten by reputable academics in business from different latitudes. Hence, the major purpose of this edited volume is to discuss the most contemporary state of the determinants of the firm value. This book presents theoretical works as well as empirical studies that contrast the ar‐ guments offered by the leading, ground-breaking theories on the firm value.

This text is conveniently organized in two comprehensive sections. The first one is led by an introductory chapter that discusses relevant concepts associated with the determination of the firm value as well as an elegant presentation of the most influential theoretical consider‐ ations. The second chapter corresponds to an empirical application of the determining ele‐ ments of the share price of companies in Oman. The third chapter studies how the free float ratio, that is, the number of shares adjusted by those in the hands of the government, refer‐ ence shareholders, holding groups, directors, etc. impacts on the value of companies in the Latin American context. Finally, this first section ends with the analysis of the effect of the referendum of the National Pension Service of Korea for greater dividends and its impact on the value of companies. The second part of this book is comprised of three chapters. The first of these chapters offers a well-articulated discussion of empirical, theoretical and even tendencies about the effect of corporate social responsibility on the firm value. The second chapter also deals with corporate social responsibility and its contribution to the value of the firm before institutional voids for a sample of companies from more than 20 developed countries. Finally, the closing chapter of this book revolves around the impact of corporate governance mechanisms and their final effect on the value of the firm. As the reader can see, in this book, there is an amalgam of considerations regarding the theoretical and empirical issues on the firm value.

#### **Prof. Paolo Saona Hoffmann, PhD**

**Section 1**

**Firm Value: An Introduction**

Richard A. Chaifetz School of Business Saint Louis University – Madrid Campus Spain **Firm Value: An Introduction**

ence shareholders, holding groups, directors, etc. impacts on the value of companies in the Latin American context. Finally, this first section ends with the analysis of the effect of the referendum of the National Pension Service of Korea for greater dividends and its impact on the value of companies. The second part of this book is comprised of three chapters. The first of these chapters offers a well-articulated discussion of empirical, theoretical and even tendencies about the effect of corporate social responsibility on the firm value. The second chapter also deals with corporate social responsibility and its contribution to the value of the firm before institutional voids for a sample of companies from more than 20 developed countries. Finally, the closing chapter of this book revolves around the impact of corporate governance mechanisms and their final effect on the value of the firm. As the reader can see, in this book, there is an amalgam of considerations regarding the theoretical and empirical

> **Prof. Paolo Saona Hoffmann, PhD** Richard A. Chaifetz School of Business Saint Louis University – Madrid Campus

> > Spain

issues on the firm value.

VIII Preface

**Chapter 1**

**Provisional chapter**

**Firm Value**

**Firm Value**

Ravi Lonkani

Ravi Lonkani

**Abstract**

**1. Overview of the chapter**

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

firm in terms of economics and finance is explained.

**Keywords:** sustainability, performance, stakeholders, firms value

DOI: 10.5772/intechopen.77342

The chapter explains the meaning of firms from the perspective of economic researchers in the past to the views of current dates. Traditional model of a firm's value is linked firmly with shareholders' value. This traditional view is used in finance and in business for many years. To enhance a firms' value, we need to maximize shareholders' value. According to this view, any activities in firms can increase the value of firms if it increases the value of the Shareholders. However, traditional concept of shareholders' value as the explanation to firms' value is challenged by a group of researchers. This group believes that value of firms should not be based on just shareholders but should include all groups of stakeholders. After giving some ideas on the meaning of firm, the corporate sustainability value of

> © 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

In what follows, the author attempts to evaluate the concept of the theory of firm value as it has passed through its interpretive history. For example, the earlier stage of the concept maintained the interpretation that a firm is merely a legal device through which the private business transactions of individuals are maintained and operated. Such a concept has dominated business, finance, and economic understanding about a firm's theory for a long time. Furthermore, as we pass through time, many views emerge from business and finance academicians who compete to explain what should be the meaning of the term "firm." This chapter is designed to outline to readers the evolution of the terms *firm* and *firm value* through the lens of academic study in business and finance (or economics perhaps?) through prior literature surrounding the issues. The essential point of the chapter is simple: to provide an

http://dx.doi.org/10.5772/intechopen.77342

#### **Chapter 1 Provisional chapter**

#### **Firm Value Firm Value**

#### Ravi Lonkani Ravi Lonkani

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.77342

**Abstract**

The chapter explains the meaning of firms from the perspective of economic researchers in the past to the views of current dates. Traditional model of a firm's value is linked firmly with shareholders' value. This traditional view is used in finance and in business for many years. To enhance a firms' value, we need to maximize shareholders' value. According to this view, any activities in firms can increase the value of firms if it increases the value of the Shareholders. However, traditional concept of shareholders' value as the explanation to firms' value is challenged by a group of researchers. This group believes that value of firms should not be based on just shareholders but should include all groups of stakeholders. After giving some ideas on the meaning of firm, the corporate sustainability value of firm in terms of economics and finance is explained.

DOI: 10.5772/intechopen.77342

**Keywords:** sustainability, performance, stakeholders, firms value
