a. discuss an aspect of the relationship between corporate financial management theory and the maximization of shareholder wealth.
b. '...[O]ne might suppose that capital creates wealth - which is strange because a pile of capital sitting there creates nothing. Yet capital providers (stockholders) lay claim to most wealth that public corporations generate. Corporations are believed to exist to maximize returns to shareholders.' Kelly (2001)
Discuss whether a different assumption for the underlying purpose of the existence of public companies would be desirable, rather than maximization of shareholder wealth.
Corporate finance is inextricably linked to the goal of maximizing shareholder wealth, at least in the context of a for profit company. for example, corporations finance themselves through debt and equity offerings. the cost of debt financing is linked to the credit worthiness of the firm which is often influenced by shareholder value metrics such as earnings per share. likewise, equity financing requires a certain expected financial gain for investors to commit their investment resources versus what ...
relationships between corporate finance and maximizing shareholder value