The role of financial managers is maximizing shareholders’ wealth. In order to a

Question

The role of financial managers is maximizing shareholders’ wealth. In order to achieve this, financial managers would like to increase firm’s stock price. Therefore, the goal of financial managers is to maximize the current share price. If we assume the financial market is efficient, why is the goal of financial manager to maximize firm’s current share price rather than future share price? In other words, are there any differences between the goal of maximizing current share price and the goal of maximizing future stock price?

Explanation / Answer

The future cash flows of the company determine the value of a share of the stock. Another way to understand this is, leaving large dividend paid to shareholder the expected price of the share must be higher in the future comparing to the current level of prices for example who will buy a stock at $200 today when the expected price in two years is $100

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