Profit Maximization / Maximization of Shareholder Wealth

The primary goal of financial management regarding great deals should be to increase stockholder wealth on the whole. If management was to only undertake on profit maximization, they would to a greater extent than likely run their corporations into the ground. The very existence and concept of a corporation is beneficial to line in numerous ways. First and foremost, corporate status helps reveal management from possible enourmous financial liability issues. Second, sh atomic number 18holders are the samara of checks and balances in a corporation. Management is wise to heed the concerns and inevitably of shareholders.

The book uses a good example when referring to nuclear fusion reactions. A merger in the future of a corporation could be viewed as a positive move - bringing more wealth, more talent and/or a larger consumer base. However, management could impose the move as a negative one as they would have to possibly change roles and give up authoritative privledges they are accustomed to. Although the merger whitethorn bring the corporation positive growth, management could be reluctant to make the merge. This could be the case in a main goal of individual(prenominal) profit maximization. Without the merge, the company could lose steam and competitiveness and shareholder could lose in the end.

It is important to note that shareholders may be employees of the firm who would become more loyal and efficient when they are rewarded financially.



Shareholders financially invest in the corporation and if rewarded with good returns, volition continue to invest generously. The more shareholders find value in a given corporation, the more likely they are to financially invest, which in turn gives the corporation more positive specie to grow business.

Also, social responsibility may play a part in the maximization of shareholder wealth. If the public perceives a corporation as being socially responsible they may become more loyal customers. Knowing...

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