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Q. Criticism of Wealth Maximization?
i) The objective of wealth maximization is not, necessarily, socially desirable.
ii) There is some controversy whether the objective of maximization of wealth is of the firm orStockholders. If wealth of firm were maximized, it would be benefiting the interests of debenture holders and preference shareholders too.
iii) In corporate sector, ownership and management are separate unlike in a sole proprietorship. Management acts as the agents of real owners i.e. shareholders. However, there is always a possibility of conflict of interest between, the shareholders' interests and managerial interests. The managers may act to maximize their managerial utility but not the wealth of stockholders of the firm. A particular decision may be taken to exhibit their managerial utility and that decision may not be in the exclusive interests of the firm. Many a time, individuals place their personal preferences and selfish interests, ahead of the institutional interests.
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Q. The main rationale for the objective of wealth maximization is that it shows the most efficient use of the society's economic resources and therefore leads to a maximization of
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