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Question: Discuss the similarities and differences between shareholder wealth maximization and stakeholder wealth maximization.

04 Oct 2022,1:40 AM

 

 

Discuss the similarities and differences between shareholder wealth maximization and stakeholder wealth maximization.

 

Expert answer

 

There are some key similarities and differences between shareholder wealth maximization (SWM) and stakeholder wealth maximization (SWM). Both concepts revolve around the idea of creating value for the firm, but they differ in how that value is created and distributed.

 

Under SWM, the primary goal is to maximize shareholder value by increasing profits and shareholders' equity. This is typically done through measures such as cost-cutting, price increases, and expansion into new markets. While this may benefit shareholders in the short-term, it can also lead to problems down the road if not managed properly. For example, if a company cuts costs too aggressively, it may eventually hurt its competitiveness or damage its relationships with suppliers.


Under SWM, on the other hand, the focus is on creating long-term value for the firm by taking into account the interests of all stakeholders ..............................

. This includes employees, customers, suppliers, and the community. While this may not always result in the highest profits in the short-term, it can create a more sustainable business model that benefits all parties involved over the long run.

 

So, to sum up, the key similarities between SWM and SWM are that they both seek to create value for the firm and they both take into account the interests of all stakeholders. The key difference is that SWM focuses on maximizing shareholder value in the short-term while SWM focuses on creating long-term value for all stakeholders.

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