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Differentiate between conflicts of Profit Verses Wealth Maximization Principal.

      

Differentiate between conflicts of Profit Verses Wealth Maximization Principal.

  

Answers


Martin
In any company, the management is the decision taking authority. As a named tendency, the management may pursue it, own personal goals (profit maximization)

But in an organization where there is significant outside participation (i.e. shareholder, lenders etc), the management may not be able to exclusively pursue its personal goals due to the constant supervision of the various stakeholders of the company-employees, creditors, customers, government etc.
Every entity associated with the company will evaluate the performance of the management from the fulfilling of its own objective. The survival of the management will be threatened if the objective of any of the entities remains unfulfilled.

The wealth maximization objective is generally in accord with the interests of the various groups such as owners, employees, creditors and society thus it may be consistent with the management objective of survival.

Owing to limitation (timing, social consideration etc. in profit maximization, in today?s real world situation which is uncertain and multi-period in nature, wealth maximization is a better objective.
Which the time period is short and degree of uncertainty is not great, wealth maximization and profit maximization are the same
marto answered the question on March 4, 2019 at 10:11


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