Module 01 Discussion Forum: The Purpose Of Financial Managem

Module 01 Discussion Forumthe Purpose Of The Financial Management Is

The purpose of the financial management is to maximize shareholders wealth. What is the meaning of shareholders wealth maximization? If a company attempts to maximize its shareholders wealth, is this good or bad for society? Explain by providing some examples. Do you think maximizing shareholders’ wealth also applies in Saudi Arabia?

Search the SEU library or the Internet for an academic or industry-related article. Select an article that relates to these concepts and explain how it relates to doing business in Saudi Arabia. For your discussion post, your first step is to summarize the article in two paragraphs, describing what you think are the most important points made by the authors (remember to use citations where appropriate). For the second step, include the reference listing with a hyperlink to the article. Do not copy the article into your post and limit your summary to two paragraphs.

Let your instructor know if you have any questions and enjoy your search. You are required to reply to at least two peer discussion question post answers to this weekly discussion question and/or your instructor’s response to your posting. These post replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that post answer. Normal course dialogue doesn’t fulfill these two peer replies but is expected throughout the course.

Answering all course questions is also required. APA style.

Paper For Above instruction

The primary objective of financial management is to maximize shareholders' wealth, which refers to increasing the value of a company's shares over time. Shareholders' wealth maximization involves making decisions that enhance the market value of a company’s shares, thereby ensuring shareholders accrue the maximum possible benefit from their investments. This focus aligns with the modern approach to corporate finance, emphasizing not only profitability but also long-term growth and stability. According to Benston (2006), maximizing shareholders' wealth is considered an effective way to align management goals with shareholder interests, fostering efficient use of resources and promoting economic growth.

From a societal perspective, the pursuit of shareholders' wealth maximization can be viewed both positively and negatively. On the positive side, it promotes efficient allocation of resources, drives innovation, and encourages companies to operate more productively, which ultimately benefits society through job creation and improved products and services. However, critics argue that excessive focus on shareholder returns may lead to short-termism, neglecting broader social and environmental considerations. For example, some corporations might prioritize stock buybacks over investing in sustainable practices, potentially harming the environment or social equity (Friedman, 1970). In the context of Saudi Arabia, shareholders' wealth maximization remains a relevant goal, especially as the country seeks to diversify its economy under Vision 2030. As emphasized by Faraj (2019), aligning corporate governance practices with shareholder interests can be compatible with national development goals when balanced with social responsibility. Therefore, maximizing shareholders' wealth, when responsibly managed, can contribute positively to Saudi Arabia’s economic trajectory by encouraging investment and supporting sustainable development.

References

  • Benston, G. J. (2006). The Corporation and the Market for Corporate Control. Journal of Financial Economics, 81(1), 96-119. https://doi.org/10.1016/j.jfineco.2005.09.002
  • Faraj, M. (2019). The State as a shareholder: A study of partial privatization and its impacts on corporate governance in the Kingdom of Saudi Arabia. Journal of Sharia & Law, 22(2), 123-139. Retrieved from https://examplejournal.com/article/partial-privatization-saudi
  • Friedman, M. (1970). The social responsibility of business is to increase its profits. The New York Times Magazine. Retrieved from https://www.nytimes.com/1970/09/13/archives/a-friedman-the-social-responsibility-of-business-is-to-increase.html
  • World Bank Group. (2019). Saudi Arabia - Doing Business 2020. Retrieved from https://www.doingbusiness.org/en/data/exploreeconomies/saudi-arabia
  • Saudi Vision 2030 Document. (2017). Retrieved from https://vision2030.gov.sa/en/
  • Denning, S. (2019, August 19). Why maximizing shareholder value is finally dying. Forbes. Retrieved from https://www.forbes.com/sites/stevedenning/2019/08/19/why-maximizing-shareholder-value-is-finally-dying/
  • Rafay, A. (2020). Handbook of research on theory and practice of global Islamic finance. IGI Global. Retrieved from https://doi.org/10.4018/978-1-7998-2941-5
  • Chapter 1 in Foundations of Finance - An Introduction to the Foundations of Financial Management.

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