Shareholder wealth maximization is the attempt by business managers to maximize the wealth of the firm they run, which results in rising stock prices that increase the net worth of shareholders, according to About.com. The overall valuation of a firm also rises with increases in its share price.Know More
In the case of a publicly held corporation, it is the shareholders whose wealth is maximized by the growth of the firm, according to About. A firm's managers and staff do not profit (aside from their salaries and benefits) from the company's growth unless they own stock in the company themselves. Many companies offer Employee Stock Purchase Plans to encourage employees to benefit from the shareholder wealth maximization their efforts on the job create.
Shareholder wealth maximization differs from profit maximization, explains About.com. Profit maximization does not take into account protecting the company from risk in the way that shareholder wealth maximization does. For example, many big banks seeking profit maximization nearly failed in 2008 because they invested in complex, risky investments that turned out to be toxic, resulting in drastic reductions in their stock prices. They did not adequately factor risk into their investment strategies and failed to practice good shareholder wealth maximization.Learn more about Investing
The terms shareholder and stockholder mean the same thing and can be used interchangeably. Stocks, or shares, represent partial ownership of a business. Each stockholder gets one vote per share, so the person or business who holds over 50 percent of the shares has the controlling interest.Full Answer >
Shareholder wealth is important because the shareholders own the company, and in a capitalist society, the measure of a company's value is in the profits it generates for the owners. The primary goal of a for-profit business firm is maximizing shareholder wealth, according to About.com.Full Answer >
Initially, stock prices are set by the company with the help of an investment bank and approval of the exchange, according to Jean Folger for Investopedia. After the initial public offering, the market determines the price of the stock.Full Answer >
The Dow Jones Industrial average is an index tracking 30 major American companies, and it rises when those companies' stock prices rise, according to Investopedia. Created to be a benchmark of American industry, the Dow Jones provides a reasonable overview of American stock market performance.Full Answer >