What Is Shareholder Wealth?

Stockholder Wealth refers to the amount of currency, physical and financial assets owned by shareholders

Shareholder wealth

Because there are certain differences in rights, responsibilities, and interests between ordinary shareholders and preferred shareholders, most people believe that ordinary shareholders are the true shareholders of the enterprise. thus,

Since the shareholders are for the company, the shareholder wealth is the share of the company owned by the shareholders

Maximizing shareholder wealth means bringing the most wealth to shareholders through reasonable financial management. Scholars holding this view believe that the purpose of shareholders to start a business is to increase wealth. They are the owner of the enterprise and the provider of corporate capital. The value of their investment is that it can bring future returns to the owner, including obtaining dividends and selling equity for cash. Under the condition of the stock economy, shareholder wealth is determined by the number of shares it owns and the stock market price. Therefore, the maximization of shareholder wealth is ultimately reflected in the stock price. They believe that the level of the stock price represents an objective evaluation of the value of the company by the investing public. It is expressed in the price per share and reflects the relationship between capital and profit; it is affected by earnings per share and reflects the size and timing of earnings per share; it is affected by the size of corporate risk and can reflect per share Risk of earnings.

This view of maximizing shareholder wealth believes that enterprises are mainly formed by shareholders' capital. The purpose of shareholders to start a business is to expand wealth. They are the owners of the enterprise. Naturally, the development of an enterprise should pursue the maximization of shareholder wealth. Under the condition of a shareholding economy, shareholder wealth is determined by the number of shares it owns and the stock market price. Under the premise of a certain number of shares, when the stock price reaches the highest, the shareholder wealth also reaches the maximum, so shareholder wealth can The performance is to maximize the stock price.

The maximization of shareholder wealth is applicable to the United States, where capital markets are relatively developed, and does not conform to China's national conditions.