Is Maximising Shareholder Wealth An Adequate Goal

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Debate of whether maximising shareholder wealth is an adequate goal of management in modern world. THE OBJECTIVE OF CORPORATION Historically, a narrow view of corporate responsibility has been enforced whereby a corporation’s responsibility extends only to maximising shareholder wealth. Corporate finance is based on a view that management should make investment and financing decisions which are consistent with the goal of maximising shareholder wealth (share price). The objective of the firm is generally assumed to be maximizing shareholders wealth (share price) by making optimal investment and financing decisions. However, is this goal adequate for management in modern world? Besides concerning about the interest of shareholders, should management of the corporations concern about the interest of stakeholder as well? Should management consider the question of social responsibility? As related to business firms, social responsibility concerns such things as protecting the consumer, paying fair wages to employees, maintaining fair hiring practices, supporting education, and becoming actively involved in environmental issues like clean air and water. Points supporting that maximising shareholder wealth is an adequate goal of the management: Point 1- maintain clear and consistent goal of management in order to allocate resource efficiently. Only society, acting through Congress and other representative governmental bodies, can judge the relative trade-off between the achievement of a social goal and the sacrifice in the efficiency of apportioning resources that may accompany realization of the goal. Corporations can thus engage in wealth maximization and thereby efficiently allocate resources. As the principal of maximization of shareholder wealth provides a rational guide for running a business and for the efficient allocation of resources in society,

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