What is meant by the goal of maximization of shareholder wealth?

Answer

Public Company

For a public company, increasing shareholder value may mean driving the stock price as high as possible.

Enlightened Management

The goal of maximization of shareholder wealth is meant by; first, in most cases "enlightened management" is aware that the only way to maintain its position over the long run is to be sensitive to shareholder concerns. Poor stock price performance relative to other companies often leads to undesirable takeovers and proxy fights for control. Second, management often has sufficient stock option incentives that motivate it to achieve market value maximization for its own benefit. Third, powerful institutional investors are making management more responsive to shareholders.

 

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