Shareholder wealth maximization (SWM)

Definition (1):

Shareholder wealth maximization (SWM) indicates the corporate goal of maximizing the shareholders' investments’ total value in the company.

To be more specific, the firm needs to strive for maximizing the return to shareholders, as measured in terms of the sum of capital gains and dividends, for a certain level of risk. As an alternative, the firm needs to minimize the risk to shareholders for a certain rate of return.

Definition (2):

Shareholder wealth maximization (SWM) means when managers of the business attempt to maximize their firm’s wealth. Actually, they are attempting to increase the stock price of the company. The firm’s value and the shareholders’ wealth both increase with the increase of its stock’s price.

Definition (3):

Shareholder wealth maximization (SWM) is the business managers’ attempt for maximizing the wealth of the company they operate, which causes increasing stock prices that maximize the shareholders’ net worth. The company’s overall valuation also increases with its share prices increases.

For a public corporation, the shareholders’ wealth is maximized by the firm’s growth. The staff and managers of a firm cannot profit from the growth of the firm unless they own stock in the firm themselves. Many firms offer Employee Stock Purchase programs for encouraging employees to be benefited from the shareholder wealth maximization.

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