The advantages of the goal of wealth maximization are as follows:
- It is a very effective and meaningful criterion to measure the performance of the company.
- The objective of wealth maximization is consistent with the objective of maximization of the shareholders’ economic welfare.
- The objective is also consistent with the objective of perpetual survival of the company and its long term profitability.
- It is operationally feasible and logical.
- It includes the motive of profit maximization as it emphasis on maximization of long term profitability and ensures maximum return on owners investment.
- The objectives allow for timings of profits and also consider the timings of perspective benefits.
- It ensures fait return on the investments, and takes into account the uncertainty of the benefit also.
- It offers rational guidelines for effective use of the resources available.
The disadvantages of the Goal of Wealth Maximization are:
- The basic assumption is that there an efficient capital market wherein the market price of the share is truly reflected. This assumption seldom holds in real practice.
- The market price is influenced by various economic and political factors which are difficult to anticipate and judge.
- The various parties having their stake in the company have conflicting interests and therefore difficult to reconcile their divergent views.