The shareholder wealth and the financial crisis

It is self-evident that financial crisis damages shareholder value severely and the depreciation of shareholder value is the result of financial crisis. But is the relationship between shareholder value and financial crisis that simple? One opinion is that the over emphasis of shareholder value is a catalyst of financial crisis.

In the case of JP Morgan, as reported by BBC news it also encountered credit crunch and shareholder value loss like any other finance companies in the crisis of 2009. Last Friday it suffered a loss of 20 million dollars in derivative business. The reason for JP Morgan involved in the loss is that the managers of JP Morgan invested lots of money in high risk derivative trading. But if looking insight the investment, it will be found the high-risk investment was encouraged by the board, the representation of the shareholders. In order to make more profit and create more shareholder value, the manager of JP Morgan chose to invest in high risk derivative trading. The purchase of shareholder value has served as a catalyst of high risk speculation. It seems that emphasis of creating shareholder value leads to misbehavior in the financial crisis and harms the shareholder value at last.