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Finance & Accounting
Pages 12 (3012 words)
Date: Course Name: Instructor’s Name: Institution of Learning: Business Finance Finance theorists suggest that the goal of the firm should be to maximize ownership wealth. Discuss the basis of this concept and its application to the real world The current trend in most firms to have their main goal being to maximize the ownership wealth has received much criticism especially from the economists…
The maximization act in general is the one being criticized as the managers tend to be carried away by the mere feeling to satisfice and not really come up with means of maximizing or optimizing according the theories of finance. This means that the mangers go for solutions which they regard as satisfactory yet they need to seek the best solutions that are possible respecting the existing constraints. Considering the structure of most modern firms, it is almost impossible to single out the mangers true motives. Modern firms are mostly organized to operate as a corporation where shareholders happen to be the legal owners of such firms and the managers have been given the mandate to act on behalf of their shareholders. This happens if the manager is out to merely satisfy the firm’s stockholders while at the same time pursing other goals of his or her own interests that are in no manner related to attempts to try and maximize the firm’s value. A good example is charitable organizations where it is hard to tell the firm’s support makes an integral part of its value maximization in long terms. ...
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