DISCUSS THE VIEW THAT SHAREHOLDER’S WEALTH MAXIMIZATION SHOULD ALWAYS BE THE PRIMARY OBJECTIVE OF BUSINESS ENTITIES
Businesses are established for many reasons and may have different objectives. Objectives of a business includes;
o Maximization of shareholders wealth
o Profit maximization
o Increasing market share
o Keeping employee agitation to a minimum
o Social responsibility
Some of these objectives may conflict with one another and as such management must find a way of striking a balance amongst the conflicting objectives. For instance a business’ attempt to engage in social responsibility or keep employee agitation to a minimum may lead to a fall in profit as well as shareholders wealth. Due to the conflicting nature of some of the objectives, it is essential for management to prioritize these objectives such that it would not be focusing so much on a particular objective to the neglect of a more important one.
One of the major issues when it comes to the objectives of a business is whether shareholders’ wealth maximization rather than profit maximization should be the primary objective of business entities. This arises mainly due to the differences in objectives between shareholders and management. Shareholders are the owners of a business, they provide capital or funds for running the business and expect increased returns on their investments. Management are people appointed by the owners of a business to run the day to day activities. In certain situations the objectives of management may differ from those of the owners. In a large corporation whose shares is widely held, shareholders exert very little control or influence over the operations of the company. When the control of a company is separate from its ownership, management may not always act in the best interests of the owners. Managers sometimes are said to be "satisficers" rather than "maximizers"; they may be content to "play it safe" and seek an acceptable...