Financial decisions should be consistent with the goal of shareholder wealth maximization. However, there may be a divergence between shareholder wealth maximization and the actual goals of management. The primary reason for this is which of the following?
A) Management wants to ensure good public relations.
B) The Board of Directors is becoming increasingly uninvolved within the corporation.
C) Shareholders do not feel that wealth maximization is relevant.
D) There is a separation of ownership and control in corporations.

Question

Quizplus · Accepted Answer

The separation of ownership and control in corporations means that shareholders (owners) appoint managers to run the company on their behalf. The managers may have their own goals and priorities that do not necessarily align with those of shareholders. Therefore, management may make decisions that are not consistent with the goal of shareholder wealth maximization.

Financial Decisions Should Be Consistent with the Goal of Shareholder