Should company managers focus on "shareholder value maximization" as the primary goal of a firm? What...

Should company managers focus on "shareholder value maximization" as the primary goal of a firm? What are the pros and cons of shareholder value maximum as the objective function of the firm? What kinds of conflicts can arise because of this goal? Please explain.

Expert Solution

Managers are agents of the shareholders because shareholders are the principles and managers should be working for protection of the interest of the shareholders and they are trying to focus on maximizing the value of the company because when they will be maximizing the value of the company there will be an increase of the share price which will be maximizing the interest of the shareholders.

Advantages related to maximization of interest of shareholder will be-

A. It will be leading to higher shareholders satisfaction and increase in their overall capital.

B. It will also lead to maximization of the market capitalisation of the company.

C. it will lead to lower conflict of interest between managers and shareholders.

there are also disadvantages related to primary goal being maximization of shareholders value because when they will be completely focusing on maximization of the shareholders value then they will not be caring for long term benefits and they will not be trying to care for other stakeholder benefit so they will be highly concentrating on the maximization of the shareholder benefits and ignoring the benefits of other parties.

There can be conflicts related to shareholders and the debt holders because debt holders will be accusing the management of taking higher risk and trying to be profit centred and they will be ignoring the corporate governance issue and they will not be also following up with the ethical norms for long term value maximization so there will be a lot of conflict of interest with society as well

jeff jeffy answered 2 years ago

Why should maximization of shareholder wealth NOT be the primary goal? Hint – A common mistake...

Why should maximization of shareholder wealth NOT be the primary goal? Hint – A common mistake is to address a “strawman” instead of the true goal of maximizing shareholder wealth. This is done in some of the articles referenced above. An example of a “strawman” in this case is saying that maximizing shareholder wealth is focusing on the short-term AT THE EXPENSE of the long-term. Since firm value is the present value of ALL EXPECTED FUTURE CASH FLOWS, strategies that...

A major advantage of using the maximization of shareholder wealth as the primary goal of the...

A major advantage of using the maximization of shareholder wealth as the primary goal of the firm is that this goal considers the timing and the risk of the expected benefits to be received the investor's consumption utility the value of closely held partnerships all the above

Currently, maximization of shareholder wealth is widely accepted as the primary goal of management.

Chapter 1 Discussion: Primary Goal of ManagementCurrently, maximization of shareholder wealth is widely accepted as the primary goal of management. However, like most economic theories, certain conditions must exist in order for the theory to accomplish its potential . Now, compare the theoretical world with the real world--if you were in charge of management decisions, how might you balance the theory with reality?

What are the challenges to shareholder value maximization

1) Describe shareholder wealth maximization. Why is it considered the main goal of a firm?

1) Describe shareholder wealth maximization. Why is it considered the main goal of a firm?2) ) Classify the following two transactions into each of the five categories for financial markets:a) An investor buys shares of a company's stock listed on the NYSE, from another investor.b) U.S. Government sells new Treasury-bills.

Question

Should company managers focus on "shareholder value maximization" as the primary goal of a firm? What...

Solutions

Expert Solution

Related Solutions

Why should maximization of shareholder wealth NOT be the primary goal? Hint – A common mistake...

A major advantage of using the maximization of shareholder wealth as the primary goal of the...

Currently, maximization of shareholder wealth is widely accepted as the primary goal of management.

What are the challenges to shareholder value maximization

1) Describe shareholder wealth maximization. Why is it considered the main goal of a firm?

Explain the concept of shareholder wealth maximization. Is there a conflict between the goal of shareholder...

Define the value maximization of firm goal and describe the relationship between this goal and financial...

Doing business for profit maximization. Why isn’t this a primary firm goal like it was in...

Should cost minimization or opportunity maximization be the primary goal of a cooperative strategy? Can both...

The primary goal for managers is to _ of the firm's _