The growth objective can be negative for a firm. Why?
A)A mature market could lead managers to invest profits in diversifying, rather than return the value to shareholders to invest elsewhere themselves
B)Top managers may have an incentive to grow the firm at the expense of long-term profits and shareholder interests
C)Even without diversification, sales maximisation does not usually lead to profit maximisation
D)All of the above

Question

Quizplus · Accepted Answer

All of the above scenarios can lead to a negative growth objective for a firm. A mature market may not provide opportunities for profitable growth, which may incentivize managers to invest in diversification that may not provide returns to shareholders. Additionally, top managers may prioritize short-term growth at the expense of long-term profits and shareholder interests. Finally, focusing solely on sales maximization may not result in profit maximization as it may come at a high cost of production or marketing.

The Growth Objective Can Be Negative for a Firm