Deciding on the total amount of assets needed by the firm is a key step in the investment decision. The goal of the firm should be to maximize earnings per share. In a large corporation, the firm's owners are usually also its top managers. Corporate management, acting as the owners' agent, makes all decisions in the owners' best interests. Maximizing the price of a share of the firm's common stock is the equivalent of maximizing the wealth of the firm's present owners.
Social responsibility is usually in conflict with the objective of shareholder wealth maximization.
The price of a share of common stock acts as a barometer indicating how well management is doing on behalf of shareholders. Used by permission. All rights reserved.