Corporate Social Responsibility and Shareholder Value Maximization Essay

Corporate Social Responsibility and Shareholder Value Maximization - Essay Example Effective management of a company entails making realistic financial decisions, which are in line with the firm, or company’s goals. The choice to maximize company shareholders stocks remain an important role of firm managers and acts as an indicator of the level of advancement. The wealth possessed by the shareholders can be determined by analyzing the market price or value of the company’s common stock. Maximizing of shareholders wealth should be a long-term goal of the firm, which can be achieved by maximizing short-term earnings and reducing the expenditures. However, the management should be careful not to cut down too much on the expenditure since research and development are crucial in enabling firms develop novel products which contribute to increased wealth. This paper focuses on why the primary objective of management should be to increase the wealth of shareholders and owners. Increment of shareholders wealth portrays improved or good management in different areas, which include risk management, income management, developments, tax rates as well as in research. The move to increase shareholders wealth helps create a favorable working environment since it helps motivate the shareholders. However, firms that may choose to focus solely on increasing the shareholders wealth and disregard corporate social responsibility risk been scrutinized negatively especially by neighboring communities. Shareholders Value Shareholders are the persons who own or have bought shares in a corporation or firm. Shareholders have certain right in a firm since they are considered the owners of the firm. Being the owners of the firm, shareholders are concerned with the performance of the firm. Additionally they are involved in the firm’s decision-making process through voting process especially when important decisions are being made. Since the shareholders have invested financially in a firm, they require the employees to work towards increasing the wealt h of the firm (Bejou, 2011, 1-6; Van Beurden & Gossling, 2008, 407-414). One of the major roles of financial managers in a firm is to acquire funds for the firm and make use of the money to fund projects that will increase or maximize the value of the shareholders as well as firm owner’s wealth. Shareholders value can be defined as the value or wealth due to the management’s capability to maximize on earnings, share prices, as well as the dividends. It is calculated by considering the number of outstanding shares and their market price. The shareholders’ value can be decreased by factors such as issuing shares (Fontaine, Haarman and Schmid, 2006, Web). On the other hands, dividend payments tend to augment the shareholders’ value. All the decision made by the management has the potential of affecting the firm’s ability to increase the wealth or the firm’s cash flow is regarded as shareholder value. Increasing shareholders value entails making responsible decision on the investments to make and the appropriate time to invest. One of the main factors that threaten the shareholders’