Question
Asked Feb 2, 2020
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Should stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action increases a firm’s stock price from a current level of $20 to $25 in 6 months and then to $30 in 5 years but another action keeps the stock at $20 for several years but then increases it to $40 in 5 years, which action would be better? Think of some specific corporate actions that have these general tendencies.

 

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Expert Answer

The action that would be better is as follows:

Stockholder wealth maximization can be considered as long-run objective of a firm. Organizations, and subsequently the investors, flourish by management’s decision making process that will create increase in long term profit. The activities that are persistently limited frequently “come up to” with a firm and, accordingly, it might get itself unfit to contend successfully against its rivals. There has been a lot of analysis as of late that U.S. firms are too short-run profit-oriented.

Example:

The U.S. automobile industry, which has been blamed for proceeding to manufacture huge gas guzzler automobiles...

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