[sahin hussain]

The wealth maximisation objective provides an operationally appropriate decision criterion. Explain

[Curlyben]

To make the rich even richer at the expense of innervation and expansion.

[arunavcd]

the wealth maximisation objective provides an operationally appropriate decision criterion. explain

This is considered as the prime objective of a profit making organization, meaning that public sector emphasizes on satisficing and prioritizing resources among all prioritized stakeholders where profit making is the last motive. Corporate Governance is the one that decides Compliances to the Control System in place and formulates modifications or addition.

Maximization of Shareholders' wealth (MoSW) could be talked about over a year if a relational content is thought about. For public listed companies, Increase in Share Price would be considered as increase in Shareholders' Wealth and a decrease would have opposite effect. For all companies, increase in EPS or recently Cash Flows determine the wealth of a Company.

Few exceptional wealth can also be seen shareholders' value/wealth; for instance, value of trademark/licenses/other intangibles including intellectual property that is added by human capital. For example, Value of a Telecommunication License in a country may appreciate up to 20 Billion Dollars. This happens in an industry where barriers to new entrant are created through high capital expenditures or lobbying or capital adequacy or whatsoever.

In a service organization, EPS may be driven by a very few collective individuals and the value created over a time period may affect the P/E of the organization or sector.

But note that the actual maximization of shareholders' wealth is dependent on Positive Capital Expenditures, EPS/Cash Flow, potential, etc. Here, although shareholders are the prime concern as in Profit Making organization, ensuring appropirate treatment to the Loan Providers, Trade Creditors, and other prioritized stakeholders. Driving only for the shareholders' wealth may endanger a company's future as certain environmental and other regulatory requirements may trigger costs that would reduce EPS. Also, it may affect the Company adversely if compliances are not adhered to or going concern is in question.