Question

Look at the financial press (any reputable news source) to see the impact of news on firm value. A company's decisions, remember, matter to many stakeholders, including shareholders. What are some companies that made decisions that lead to a positive or negative change in shareholder value? Why should the maximization of shareholder wealth be seen as the primary goal of the firm?

Answer 1

Comapnies which lost the most includes:

1. Citigroup, the American multinational investment bank and financial services corporation, which suffered a loss of $6.8 billion in 2017.
2. General Motors Company had a loss of 3.9 billion in 2017, meaning it ranked fourth of the top ten biggest losses.
3. Dell Technologies ($3.7 billion - 2017),
4. Community Health Systems ($2.5 billion- 2017), and
5. energy company NRG ($2.2 billion-2017)
6. AOL Time Warner
7. American International Group (AIG)
8. Fannie Mae
9. Royal Bank of Scotland (RBS)
10. Vodafone Group, and more

The shareholder wealth maximization goal states that management should seek to maximize the present value of the expected future returns to the owners of the firm. In addition, the greater the risk associated with receiving a future benefit, the lower the value investors place on that benefit.

The goal of shareholder wealth maximization is a long term goal achieved by many short-term decisions to maintain or exceed the expected value of shareholders. Serving the interests of stakeholders can create profit for the firm, create value for shareholders.In finance , the goal of the firm is always described as "maximization of shareholders' wealth".

Profit Maximization - is always used as a goal of the firm in microeconomics. Focus on short term goal to be achieved within a year. It stresses on the efficient use of capital resources.Company managers focus to increase the wealth of the firm by increasing the stock prices. Therefore, it's a priority for shareholder value maximization which is defined: “Maximizing shareholder wealth means maximizing the flow of dividends to shareholders through time" (Glen Arnod, 2008).