profit maximization and maximization of shareholder wealth

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  • August 27, 2011 at 5:10 am #24
    Aakanksha
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    Is there a difference between corporate profit maximization and maximization of shareholder wealth?

    August 27, 2011 at 5:11 am #8572
    Aakanksha
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    can any one help me?

    August 27, 2011 at 5:13 am #8573
    Aakanksha
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    Sure, profit maximization relates to profits *only* while shareholder wealth also involves total company equity, debt ratios and any of 15 other financial performance measure ratios. Management could focus on profit maximization over a longer period of time, say, 40 years (Toyota), while the shareholder would rather see stock values and corporate total value increase immediately (get in and get out) (90% of American manufacturers). If management focused on short-term profit maximization, say at the expense of long-term sales revenues, then shareholder wealth (stock price) could actually decrease because of the loss of market share.

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