Which of the following statements best describes corporate goals and issues?
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The proper goal of the financial manager should be to attempt to maximize the firm’s expected cash flows, because this will add the most to the wealth of the individual shareholders.
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Potential agency problems can arise between shareholders and managers, because managers hired as agents to act on behalf of the owners may instead make decisions favourable to themselves rather than the shareholders.
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Large, publicly owned firms like Tesla and Apple are controlled by their management teams. Ownership is generally widely dispersed; hence, managers have great freedom in how they run the firm. Managers may operate in the shareholders’ best interests, but they also may operate in their own personal best interests. As long as they stay within the law, there is no way to either force or motivate managers to act in the shareholders’ best interests.
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The primary goal of the corporation should be to maximize shareholder wealth, which means the managers should be unmindful of employee welfare or community concerns.
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How to convert verbal statements into algebraic equations (Part 3)
How to convert verbal statements into algebraic equations (Part 4)