Understand From Financial Experts Shareholder Wealth Increment

Owner of the business firm

The shareholders are those individuals who have bought shares of supply, which point to ownership in the firm. Still if your business is a one-person shop, you are the shareholder. If the business is a vast conglomerate, then it has a Board of Directors invented of the shareholders who own shares of the firm based on how much money they have advanced. Because the shareholders own the firm, they are allowed to the profits of the firm.
•Shareholder wealth is the suitable goal of a business firm in a capitalist society. In a industrialist society, there is confidential ownership of goods and services by individuals. Those individuals own the means of manufacture to make money. The proceeds from the businesses in the economy accumulate to the individuals.

Shareholder Wealth Maximization
When business managers try to maximize the wealth of their firm, they are actually trying to increase their stock price. As the stock price increases, the individual who holds the stock wealth increases. As the stock price goes up, the value of the firm increases and the net worth of the individual who owns the stock increases.

The Managers of the Firm
People often think that the managers of a firm own the firm. In the case of a very small business, that might be true if there is one owner that also manages the firm. Remember, however, that the one owner is a shareholder of the firm. In a larger business, there may be many levels of management and staff. They don't necessarily own the firm. Do they profit at all from the business except for their salaries and employee benefits? Only if they own shares of stock in the company, some businesses offer shares of stock to their employees at a discount through an Employee Stock Purchase Plan (ESPP).

•Conflicts between Owners and Managers
Because the managers of a firm are directed by a Board of Directors regarding how they run the business firm and because they do not profit directly from the goal of shareholder wealth maximization unless they own stock, there is sometimes conflict between stockholders and managers. This conflict is called the agency problem.

•Managers serve up as agents of the shareholders. If there is an organization problem between the two groups, it is significant to get it resolved as quickly as possible as it can cause difficulties within the business firm that can delay act.

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