What is the objective function in corporate finance for a private firm?
The objective of maximizing stock prices is a relevant objective only for firms which are publicly traded. How, then, can corporate finance principles be adapted for private firms? For firms which are not publicly traded, the objective in decision making is the maximization of firm value. The investment, financing and dividend principles we will develop in the chapters to come apply for both publicly traded firms, which focus on stock prices, and private businesses, that maximize firm value. Since firm value is not observable and has to be estimated, what private businesses will lack is the feedback, sometimes unwelcome, that publicly traded firms get when they make major decisions. • What is the objective function for a non-profit organization? It is much more difficult to adapt corporate finance principles to not-for-profit organizations, since their objective is often to deliver a service in the most efficient way possible, rather than to make profits. The objective therefore has to
