Question

If the main goal for a corporation is to Create Value for Investors, why isn’t the main goal to achieve the highest possible net profit, instead?

Answer 1

The main goal of corporation is to maximize the shareholders wealth rather than maximizing the overall profit of the company.

Profit maximization is a narrow approach which only factors into short-term benefits of the company and and shareholders.this advocates doing every ethical as well as unethical things for maximization of overall profits for the company. The prime objective of this method is to to maximize the profits not the wealth.

while the theory of wealth maximization focuses into maximizing the overall wealth of the shareholders. Overall wealth of the shareholders may result into pain in the short term but gain in the long term. Wealth maximization accounts for only ethical practices which not only maximizes the profit but maximizing the potential benefits accruing to be company in the long run. The philosophy of wealth maximization is a wider philosophy then philosophy of profit maximization.it can be seen through various support packages announced by different companies as stimulus to the society In response of coronavirus threat. These are intended for benefits in the long term.

Therefore corporations are intended for maximization of wealth even if it means taking pain in the short term but eventually they will gain in the long term.