Argument For And Against Profit And Wealth Maximization

ARGUMENT FOR AND AGAINST PROFIT AND WEALTH MAXIMIZATION GOALS IN LIGHT OF CORPORATE FINANCE Every individual firm in any market segment has well set goals that it aims to achieve. These goals may be set by the owners or shareholders who must collaborate closely with the agents whom they have given the responsibility to manage the firm. The agents are basically the managers who through the agency theory must ensure that the firm is meeting its strategic goals. A firm with no set goals or one that doesn’t have good managers is set to fail in its bid to make profit and hence will definitely have to close down. To ensure that a firm meets its objectives, a few considerations must be looked at. These could†¦show more content†¦v) Quality of the firm’s products vi) Good industrial relations. Expounding on Financial Goals ( Profit and Wealth Maximization). Profit Maximization Main aim of any kind of economic activity is earning profit. A business concern is also functioning mainly for earning profit. Profit is the measuring techniques to understand the business efficiency of the concern. Profit maximization is also the traditional and narrow approach, which aims at maximizing the profit of the concern. However, unlimited profit maximization cannot be defended by any reasonable ethical theory. The idea that corporations should pursue the interests of their shareholders, takes its starkest form in the sentiment expressed by Milton Friedman, that ‘‘the social responsibility of business is to increase its profits’’ (Friedman, 1970). Friedman is very clear in stating that it is illegitimate for a corporation to act in a way that is detrimental to shareholder returns. Profit maximization is thus a moral imperative for corporate executives. The interests of groups other than the shareholders should thus only be given weight to the extent that pursuing these interests also benefits the shareholders. 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