Question

There are many potential goals of a corporation, such as: minimize costs, maximize sales, maximize employment, maximize earnings, maximize shareholder wealth, maximize dividend payments, etc. Which one is the best for the long-term health of the company and society?

Answer 1

Ans - The best for the long-term health of the company and Society is to maximize the shareholder wealth. As Shareholders are the real owners of the business they desire that the company's operations will create returns as much as possible. So management should take the decision in favour of the shareholders.

In modern finance, it is proven that shareholder wealth maximization is the superior goal of a firm and shareholders are the residual claimants; therefore maximizing shareholder returns usually implies that firms must also satisfy stakeholders such as customers, employees, suppliers, local communities and the environment first.

As a firm’s value cannot be maximized if the management board or shareholders ignore the interest of its stakeholders. Thus, I agree with the argument that the main goal of a firm is to maximize shareholder wealth.

Shareholder wealth maximization means increasing the market price of the common stock. A stock price shows the value of the firm and the returns of the company. The increasing value of share leads to an increase in market capitalization that is the Dollar value of the firm calculated by multiplying the company's shares outstanding by the current market price of one share.   

Large market capitalization will invite more and investors so the main motive of the firm should be maximizing shareholders wealth. This aim will automatically fulfill all the long term goals of the firm.