Question

Maximizing stock prices does not make sense because investors focus on short-term results and not on the long-term consequences. Do you agree or disagree? State your argument(s) and, if possible, provide examples from one or multiple companies) to back those arguments. 34 B Av EEN Next page page

Answer 1

Answer-

The statement that stock price maximization makes no sense as investors focus on short-term result and not on the long term consequences. I disagree with this statement as maximizing stock price ultimately maximizes shareholders wealth.

The primary goal of  management's stockholder wealth maximization translates into maximizing the price of the common stock. Some of the investors look for short term gains like stock and cash dividends but it is not always the case. There are companies that look beyond the short term returns to investors and invest in profitable ventures which leads to increase in the stock price. This will benefit the investors by increasing their wealth.

For illustration in the 1990s and early 2000s Microsoft never used to pay dividends but used to reinvest the earnings, but it was the darling stock of the investors for long period as there was lot of appreciation in the stock price. The companies like Alphabet, the parent company of Google and Facebook and Tesla pays lesser dividends unlike Apple Inc. but are seen as good investment opportunities.