Question

Do you believe that firms really subscribe to the goal of maximizing stockholder wealth? Why or why not?

Answer 1

Firms generally do not subscribe to the principle of value maximization, rather they are only focused at profit maximization because that would help them to build a quick reputation and that can also help the management to secure their job and increase their remuneration.

Profit maximization will always be helpful for these organisation because these organisation will always try to impress their shareholders and Markets quickly so profit making is a good thing in the short run, because it will help the management also to gain excessive remuneration and it will help the shareholder to maximize their wealth as well because their share price will increase due to higher profit but in the long run, if the principle of value maximization is not followed, it will lead to various other stakeholders like governments and society to be at the losing end, which will be ultimately resulting in endangering the sustainability of the company in the long run, so a firm should always be focused on value maximization for the protection of overall interest of various stakeholders rather than maximization of profit which is just aimed at maximization of shareholders own personal capital appreciation and employees remuneration