Question

It is often said that the primary obejctive of a corporation is to maximize stockholder wealth. do you agree or disagree with this statement?

your orginal post should consist of about 150 words, give detailed reasoning behind your opinion.

Answer 1

Yes , I agree .The shareholders are the individuals with an ownership interest in the firm. The management of the corporation is elected by it's shareholders . The management of the corporations strives to maximize the wealth(positive value) of the corporation ,this is because the maximization of the wealth of a firm would positively affect the stock price of the firm .The main reason why the shareholders own shares or invest in the corporation is to benefit from share price appreciation(also known as capital gains) and to receive dividends. When a firm strives to maximize it's wealth organization as a whole will benefit from a variety of factors .Firstly, an increase in stock holder value would result in higher returns for the investors of the firm .Secondly ,when the shareholder wealth maximization is the primary objective the firm will be more careful and calculated in it's approach. Every business decision made will be evaluated to ensure it adds value to the firm .The firm will accept projects that would add positive value to the firm. Another benefit of having stockholder wealth maximization as the primary objective is that wealth maximization is long term and is based on cash flows rather than on profits, and as a result cannot be as easily manipulated as profits can be.