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SHAREHOLDER WEALTH MAXIMIZATION 1
SHAREHOLDER WEALTH MAXIMIZATION 4
Shareholder Wealth Maximization and Social Change Initiatives
The financial objective of a corporation or business is to maximize the wealth to the shareholders. The shareholder advances capital to the companys managers, and it is the duty of the managers to utilize the funds as the stakeholders stipulate. The managers have a duty to both the shareholders and the stakeholders (Ross, Westerfield, Jaffe & Jordan, 2016). Stakeholders are potential beneficiaries, and risk bearers of the business and the managers have the responsibility of ensuring no ethical rights of the stakeholders are violated and that the interests of the stakeholders are balances when making decisions (Hiebl, 2015). The duty of the corporation to the stakeholders brings the connection between its main objective and corporate social change initiatives.
Creation of value for the company comes hand in hand with the maximization of the profit as the prime objective of the company (Hiebl, 2015). An increase in the profit margin of the company helps in increasing the value of assets for the business owners. Different factors assist in increasing the value of assets in a company and in the process help in maximizing the shareholder wealth (Ross, Westerfield, Jaffe & Jordan, 2016). These factors include the maximization of the earnings after tax, the earning per share, and the market price per share (Carraher & Van Auken,...
Therefore, a company is always looking for ways to maximize the sales of their products, which maximizes the profit of the company. However, the society also has expectations for the company to operate not only based on profit maximization but also on the social responsibility.
Through the implementation of social responsibility, the company can enhance the sense of goodwill that entrepreneurs have and the reputation of the company amongst its partners. Shareholders are required to support social change initiatives by the company as a way of promoting the production and the business activities of the enterprise (Ross, Westerfield, Jaffe & Jordan, 2016). Social responsibility is achieved through such elements as protecting the consumer and directing the efforts of the company to environmental issues such as conservation initiatives (Carraher & Van Auken, 2013). Social acting and responsibility by an organization attract more customers and potential investors. There have been instances where consumers boycott some goods from some companies because of deficiencies in social responsibility.
The shareholder theory holds that the social responsibility of a business is to use the resources and engage in activities meant to increase the profits of the company (Hiebl, 2015). However, the company has to engage in open and free competition (Ross, Westerfield, Jaffe & Jordan, 2016). Conversely, the stakeholder theory asserts that managers have a duty to shareholders,…
References
Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2016). Corporate finance (11th ed.). New York, NY: McGraw-Hill Irwin.
Carraher, S., & Van Auken, H. (2013). The use of financial statements for decision making by small firms. Journal of Small Business and Entrepreneurship, 26(3), 323336. doi:10.1080/08276331.2013.803676.
Hiebl, M. R. W. (2015). Agency and stewardship attitudes of chief financial officers in private companies. Qualitative Research in Financial Markets, 7(1), 423. doi:10.1108/QRFM-12-2012-0032
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Stakeholder Approach to Corporate Responsibility This essay examines the question of whether adopting a stakeholder approach is a sufficient means of assuring that corporations meet their moral responsibilities due society. The essay includes a survey of the literature on the subject. Any discussion of the effectiveness of stakeholder theory must address who and what are considered stakeholders. R. Edward Freeman (1984) defines stakeholders as "any group or individual who can affect or
Shareholder Activism in the Churches and Human Rights Protection Stakeholder activism The purpose of this work is to critically examine the involvement of churches in shareholder activism and its contribution to the protection of human rights. The historical path of the churches their involvement of shareholder activism and human rights campaign efforts as well as the motivational factor that compels their involvement will be examined. And as well the teachings and beliefs
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Communities are looking for social expenditures by the business to benefit the community (hospitals, stable employment, donations, and investments). Managers face a challenge in making such crucial decisions. Therefore, corporations must be clear on how to make tradeoffs between these often inconsistent and conflicting interests from different stakeholders. In the Shareholder Wealth Maximization model, three types of maximization exist in a company. They include total stakeholder maximization, shareholder maximization and
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