Finance Management- Essay Paper.
Managers are working agents for the shareholders, managing their finances to ensure that they meet their financial goals and objectives. One of the advantages for maximizing shareholder wealth on the standpoint of the company is to attract more investors towards the firm. For the company to meet its set goals and objectives, it is essential that the business operations should be financed from equity rather than debt financing. Shareholders are attracted to a flourishing business. In this regard, a business with a higher debt to equity ratio faces high risks of failure, which does not attract shareholders.Finance Management- Essay Paper. As such, maximizing shareholder wealth is a tool for the company in maintaining the existing shareholders while attracting more investors which results to a higher level of success for the company as shares and other securities becomes a significant source of finance. According to Cremers (2016), as more shareholders come in, the money paid in buying shares increases the level of equity finance and hence an opportunity for growth.
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On the disadvantages, maximizing shareholder wealth tends to go against the overall objective of a firm. As shareholders are working towards maximizing wealth, the firm is working towards maximizing profits. Being socially responsible to the shareholders requires the company to pay dividends among other benefits to the shareholders in any profits generated from the business (Cremers, 2016). In doing so, such payments reduce the company’s profitability and, thus, negatively affect the company’s performance.Finance Management- Essay Paper.
In the Bible, Luke 19: 11-27, Jesus speaks about the parable of a master who gave minas to his ten servants and asked them to work with them for a profit before he comes back. At the master’s return, one of the slaves had worked with the mina and made ten more minas, and the master congratulated him and made him in charge of ten cities. The second servant had produced five more minas, and he was made in charge of five cities. However, one of the servants did nothing with the mina claiming that the master was trying to reap from where he did not sow. Van (2011) highlights that the servant’s actions made the master angry, and the mina was taken away from him and given to the one who had ten minas.
From this parable, it is evident that as an investor, a shareholder aims to maximize wealth. By buying shares from the company, the shareholders expect that the company will work with their money and earn them more income when they come back after some time. However, when the company fails to produce any income for the investor, one will find no need for keeping his money in the business and thus take it away and invest somewhere else.
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References
Cremers, K. J. (2016). The shareholder value of empowered boards. Stan. L. Rev., 68, 67.
Van Eck, E. (2011). Do not question my honour: A social-scientific reading of the parable of the
minas (Lk 19: 12b–24, 27). HTS Teologiese Studies/Theological Studies, 67(3). https://doi.org/10.4102/hts.v67i3.977. Finance Management- Essay Paper.