Question

Discuss and evaluate the statement "Maximizing shareholder wealth should be the goal of all financial managers, regardless of the effect on the quality of the product, customer service, and employee and supplier relations." by explaining why you do or don't agree with this statement and providing at least 3 points supporting your argument.

Answer 1

Ans ) To drive into conclusion we first has to understand what is shareholder wealth and who are shareholders.Shareholdes are the owners of the company they have the voting rights in the company they receive dividends on behalf of the shares they hold.Hence wealth maximization is the process of creating wealth by the process of appreciating the price of shares holded by the shareholders  which inturn reflect the operational efficiency and the profitability of the company as well as the indicator of efficient financial management..On the other hand due to the constant pressure as well to attain this objective of increasing the shareholders wealth ,the managers performs such kind of act like showing false figures in the balance sheet popularly known as window dressing as it will publish higher profits and interns increase the share price of the company.The cost aspect is also taken into consideration but if the reduction in cost is related to decline in the quality of the products then it will result in the reduction in the demand and hence results in the loss of market capitalisation as it will results in the reduction of profits that intern results in negative sentiments and reduction in share price similarly chaos in the organisation causes dissarisfaction in the employees and harm the productivity of the organisation same is true with the suppliers and other stakeholders hence I dont agree with the satatement.