EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 1, Problem 5QTD
Summary Introduction
To discuss: The reasons of social responsibility activities are not inconsistent with the wealth maximization of shareholders.
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It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is “expected” to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization.
What does it mean to say that managers should maximize shareholder wealth "subject to ethical constraints"?
What ethical considerations might enter into decisions that result in cash flow and stock price effects that are less than they might otherwise have been?
Firms must provide the right incentives if they are to get -Select-shareholderscreditorsmanagersItem 1 to focus on long-run value maximization. Conflicts exist between managers and stockholders and between stockholders (represented by managers) and -Select-employeesdebtholderscustomersItem 2 . Managers' personal goals may compete with shareholder wealth maximization. However, managers can be motivated to act in their stockholders' best interests through (1) reasonable -Select-vacationcompensationperquisiteItem 3 packages, (2) firing of underperforming managers, and (3) the threat of hostile takeovers. If a firm's stock is undervalued, corporate raiders will see it as a bargain and will attempt to capture the firm in a hostile takeover.-Select-StockholdersBondholdersItem 4 generally receive fixed payments regardless of how well the firm does, while -Select-stockholdersbondholdersItem 5 earn higher returns when the firm's earnings are higher. Investments in -Select-riskysafeItem…
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EBK CONTEMPORARY FINANCIAL MANAGEMENT
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- what does it mean to say that managers should maximize shareholders wealth subject to ethical constraints?arrow_forwardWhat do you see as some of the possible problems if shareholder value is seen as a strategy (and not an outcome)?arrow_forwardIs maximizing shareholder value inconsistent with being socially responsible?Explain.arrow_forward
- Why do you think that wealth maximization is an appropriate goal of the firm? Does it lead to maximization of the wealth of shareholders? Does an attempt by the management to maximize value ofthe firm benefit the society? Explain.arrow_forwardTRUE or FALSE: Managers recognize that being socially responsible is not inconsistent with maximizing shareholder value.arrow_forwardCan a firm maximize its profit if it is only managed to meet shareholders' interests? (Own words please)arrow_forward
- Discuss Mark 10:23-25 and its application to capital rationing and maximizing shareholder wealth. Capital rationing could affect the returns to shareholders. An ethical dilemma is faced by the executives of the business. Capital rationing could affect the stakeholders (other than the shareholder) of the business. Should capital constraints modify the principle of maximizing shareholder wealth?arrow_forwardWhy should shareholder wealth maximization be the overriding objective of the management?arrow_forwardShareholder wealth maximization and social responsibility – Is shareholder wealth maximization inconsistent with social responsibility (contributing to the arts, education, social programs, etc.)? Explain why social responsibility activities may or may not be inconsistent with shareholder wealth.arrow_forward
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What is Corporate social responsibility (#CSR) ?; Author: Servier International;https://www.youtube.com/watch?v=1bpf_sHebLI;License: Standard Youtube License