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For a long time, share price growth has been regarded as the primary benchmark of success in management decision-making for listed enterprises. However, this viewpoint may lead to bias of the management objective, underinvestment in capi tal budgeting, and inappropriate reward scheme for management. Based on the fundamental theory of corporate finance, the paper tends to find out the fallacies of share price maximization theory and some inappropriate criteria for investment appraisal. The theory of Capital Market Efficiency, Capital Structure, equations of Net Present Value and decision making criteria such as Payback and Internal Rate of Return will be used to support the analysis. The paper illustrates that although share price has important effects on financial management of a listed corporate, it may be misleading and cause fallacies in management. S ome frequently used criteria may result in mistakes in investment decision making. It is important that managers pursue a valid objective and make investment decisions based on rational criteria. In summary, this paper gives financial managers general suggestions on corporate goal setting and capital budgeting but still the problems can be solved by further studies.

The Fallacies of Corporate Investment Appraisal: A discussion of Share Price Maximization