What is ownership theory?

Ownership theory posits that the primary purpose of a corporation is to serve its owners, typically the shareholders, by maximizing their wealth. This perspective emphasizes the rights and responsibilities of shareholders, suggesting that they should have a significant influence over corporate decisions. Proponents argue that focusing on shareholder value drives efficiency and accountability, while critics contend that it can lead to short-termism and neglect of other stakeholders, such as employees and the community. Overall, ownership theory highlights the relationship between ownership structures and corporate governance.