What does this statment mean Firms should do everything to maximize shareholder value”?

Expert Solution

It is widely accepted that one of the firm’s goal is to maximize returns for investors. It is generally agreed in a theory that the financial goal of the firm should be shareholders wealth maximization (SWM), as reflected in the market value of firms shares. Maximizing shareholder value is the idea that firms should operate in a manner in which shares will reflect higher expected future values.

Maximizing shareholder wealth means maximizing the flow of dividends to shareholders through time by maximizing profit after tax. So basically the governing objective of the company should be to maximize the value of the company for shareholders. However, to achieve this purpose, it also requires serving the economic interests of all stakeholders over time. Maximizing stakeholder’s interests also maximizes shareholder wealth.

Since Shareholders are the owners of the company and have potential profit only if the company does well or potential loss if the company does poorly. Therefore firm should be run to maximize the value of the firm and if the firm builds value then the share price should reflect this. , shareholder value maximization and stakeholders’ interest satisfaction play a key role in creating profit for company so a firm should do make all efforts to maximize shareholders value

jeff jeffy answered 7 months ago

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