The importance of shareholder’s wealth maximization in firms.
Shareholders are the owners of the corporation because they have interest after purchasing the company’s stock. Because of these interests, they are entitled to the profits of the company. Maximization of the shareholder’s wealth is increasing the company’s stock price, which leads to an increase in the value of the company and the shareholder’s wealth (Zaibar, Irem, pg 739). The managers of the company should work towards getting the highest possible returns while mitigating all risk of loss. Maximization of shareholders profits should be a short term goal as it aims at increasing the share price of the company.
Although it may have a lot of criticism, maximizing shareholder’s wealth has a lot of benefits. Increased returns are the biggest advantage of maximizing shareholders wealth. It helps the business to make a lot of money and become more wealthy. Maximizing wealth helps the business to be more consistent because its main focus will be to maximize wealth. Objectifying maximization of shareholder’s wealth makes the business to set unique goals. The directors of the company will make impulsive decisions that will maximize returns while mitigating lose. Maximization of shares will also bring a lot of disputes between the owners of the company ad the managers. Conflict may arise because the managers of the company act as agents of the shareholders and they do not benefit directly from the maximization of wealth.
Works cited
Frankel, R. M., S. P. Kothari, and L. Zuo. “Why shareholder wealth maximization despite other objectives.” Available at SSRN (2018).
Zubair, A. K., and H. Irem. “Shareholders wealth maximization: Objective of financial management revisited.” International Journal of Enhanced Research in Management & Computer Applications 7.3 (2018): 739-741.