It has been argued that shareholder wealth maximization is not a reali

QUESTION

It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is ?oexpected?? to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization.
Shareholder wealth maximization or valuemaximisation implies maximization of the market price of the share .The shareholder s wealth maximization as the primary goal notwithstanding for the firm , there is a broader focus to include the interest of the stakeholders as well as shareholders. The stake holder include employee, customers, suppliers, creditors, and owners and others which have a direct link to the firm. The stakeholder s view is considered part of its social responsibility and is expected to provide long term benefits to the shareholders by maintaining positive stakeholders relationship which would minimize the turnover, conflict and litigation .For example a firm engaging in social activities like¦

ion to arts , education etc will lead to better reputation of the firm .The customers are likely to have a positive image of the firm in their minds which in turn will lead to more sales or revenue for the firm. Thus ,these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization. Rather, a firm can better achieve its goal of shareholders wealth maximization with the co-operation ,not with the conflict with its other stakeholders

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION