One problem with maximization of shareholder wealth as a goal is that it ignores risk taken by the firm's financial decisions.

Question

Quizplus · Accepted Answer

Maximization of shareholder wealth as a goal does consider risk, as the value of a firm's stock reflects both the expected returns and the risk associated with achieving those returns. Financial decisions that increase risk without adequate expected returns can decrease stock value, contrary to the goal of maximizing shareholder wealth.

One Problem with Maximization of Shareholder Wealth as a Goal