Question

Do you agree with these comments? Why or why not?

a. The goal of all employees of a business should be to maximize the wealth of the owners because that is the reason that the owners invested in the business – to make money.

b. Financial managers should only accept transactions that are expected to increase the firm’s stock price.

Answer 1

a. The said statement may be false, or I do not agree with the statement.

Because, employees may have different views on their expectations, obligations, etc. Some may work to get satisfaction, some may work to enjoy power, some may work for time pass, and so on. Majority of the employees attend work or work for organizations to fulfill their own dreams but not the dreams of employer. But for the sake of saying, they may say that we are working for achievement of organizational goals.

And we can not say that the ultimate goal of any organization is wealth maximization only. There are many firms like TATA Group in India, Microsoft, Warren Buffet group, working and donating the funds to welfare and development of undeveloped people. These owners established units to distribute the profits or returns to the deserved people but not gain more and more profits.

b. It is a limited view statement, in some of the times or cases, the financial managers should accept the decisions which may result in immediate price hike of the stock. They may take decisions based on what is good to the firm, how it provides good status and returns to the firm in present as well as future, how to acquire more and more customers to the firm and so on.

Hence, all the decisions may not look only increase in stock price, some decisions may not relevant to the stock prices also. So, I do not agree with the statement also.