Question

We learned that share value maximization is the ultimate goal of a firm in the

market economy? How does this seemingly selfish goal benefit the entire society?

Please answer this question in a essay format!

Answer 1

As per traditional norms the most important goal for the company is to increase the share value of the firm or increase the share holder value, it seems selfish as it consider only the stock holders and not society as a whole, however as per new terms you won't be able to increase stake holder value unless you are following good business practice , you are not harmful to the society etc.

Let's understand with example.

suppose X inc is chemical manufacturing company which produces chemical which are utilize in tyre manufacturing , so the carbon black chemical causes lot of pollution in the environment.

As far as financial performance it grows at CAGR of 25% since last 10 years ,so ultimately it created value for it's shareholders however due growth of the business it expanded 10 more plants , some of them are near be locality as the land was not costly company purchase and set up manufacturing capacity over there.

here company is considering it's stake holder value maximization goal but at the cost if nearest locality health which seems very selfish, however now onwards due to increase in the regulation company won't get even land to set up manufacturing plant so they won't incurred capital expenditure and legal expenditure as they won't set up plant near locality , here society will also be benefited due the above goal of the company.

so conclusion is if now company wants to grow it's stakeholders value then it needs to follow the regulation which take care of society hence now selfish goal is benefited to whole society.

Though exception is always there*