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    Shareholder Wealth vs Corporate Wealth Maximization

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    As you have learned in this unit, the primary goal-and in the effect the only goal-of the management at U.S. publicly held corporations is to maximize the wealth of their stockholders. This type of management is called Shareholder Wealth Maximization (SWM) model. SWM is very popular in the U.S. On the other hand, there are people who may argue that a company's goal should also include it's entire stakeholders - including employees, creditors, suppliers, the local community, etc. This thinking is referred to as Corporate Wealth Maximization (CWM) model - which is prevalent in Japan and many European countries.
    In a few paragraphs, explain which model leads to increased economic efficiency. Why?

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    Help of the following source has been taken in framing the answers

    Source:

    http://www.law.harvard.edu/programs/olin_center/corporate_governance/papers/No339.01.Roe.pdf

    The shareholder wealth maximization is in conformity with a utilitarian, greatest-good-for the- greatest-number philosophy in a competitive world. It is accepted as an appropriate goal for publicly held corporations. The justification for this goal is that it is the price paid for strong capital markets and allocative efficiency.

    In the long run, employees and other stakeholders (creditors, suppliers, the local ...

    Solution Summary

    The solution compares Shareholder Wealth Maximization (SWM) model with Corporate Wealth Maximization (CWM) model.

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