AN ASSIGNMENT OF BUSINESS ECONOMICS

ON
IMPACT OF WEALTH MAXIMIZATION ON THE LONG-TERM
SUSTAINABILITY OF BUSINESS

Submitted By:
Durga Dhimal
MBA1st semester
Green Peace Lincoln College

SubmittedTo:
Som Nath Acharya
Business Economics

GPLC, Itahari
December 2023
Table of content

Contents
Introduction of wealth maximization ................................................................................. iii
Objectives of the study: ..................................................................................................... iii
Impact of wealth maximization on long-term sustainability of business: ........................ iv
Firms balance wealth maximization with social responsibility in the contemporary
business landscape through several strategies: ................................................................... v
 1

Introduction of wealth maximization

Wealth maximization is the concept of increasing the value of a business in order to

increase the value of the shares held by its stockholders. The concept requires a
company’s management team to continually search for the highest possible returns on
funds invested in the business, while mitigating any associated risk of loss. This calls for
a detailed analysis of the cash flows associated with each prospective investment, as well
as constant attention to the strategic direction of the organization.

The most direct evidence of wealth maximization is changes in the price of a company’s
shares. For example, if a company spends funds to develop valuable new intellectual
property, the investment community is likely to recognize the future positive cash flows
associated with this new property by bidding up the price of the company’s shares.
Similar reactions may occur if a business reports continuing increases in cash flow or
profits.

Objectives of the study:

• The correlation between wealth maximization strategies and long-term business

sustainability
• Analyzing case studies to highlight how firms integrate social responsibility
practices into their wealth maximization goals.
• Assessing the effectiveness of various approaches in balancing wealth
maximization and social responsibility
• Investigating stakeholder perceptions and their influence on firm strategies
regarding wealth maximization and social responsibility.
• Proposing frameworks or models for businesses to harmonize wealth
maximization and social responsibility for sustainable outcomes.
 2

Impact of wealth maximization on long-term sustainability of business:

Wealth maximization, while focusing on short-term gains, can sometimes overlook long -
term sustainability. If it prioritizes profits over environmental or social responsibilities, it
may lead to detrimental impacts like environmental degradation, societal inequalities or
reputational damage. Striking a balance between profit goals and sustainable practices is
crucial for a business's long-term viability.

Positive impacts:

1. Efficiency and Innovation: Wealth maximization often drives businesses to

become more efficient and innovative. The pursuit of higher profits encourages
companies to streamline operations, invest in research and development, and
adopt technologies that can improve productivity and competitiveness. This drive
for efficiency and innovation can lead to sustainable practices that reduce waste,
energy consumption, and environmental impact.
2. Access to Capital: Companies that focus on wealth maximization might find it
easier to access capital from investors and financial markets. This capital influx
can enable long-term investments in sustainability initiatives, such as renewable
energy projects, eco-friendly production methods, or community development
programs, which contribute to the company’s long-term viability.
3. Job Creation and Economic Growth: A financially healthy business can contribute
to job creation and economic growth, which are essential for the long-term
sustainability of communities. By generating employment opportunities and
contributing to local economies, companies can foster social stability and
resilience, indirectly supporting their own sustainability.

Negative Impacts:
1. Short-term Focus: A singular focus on maximizing wealth can lead to short-term
decision-making aimed at meeting quarterly financial targets or pleasing
shareholders. This short-termism might result in sacrificing long-term
sustainability goals, such as investing in renewable resources, employee well-
being, or ethical supply chains, for immediate financial gains.
 3

2. Environmental and Social Risks: Pursuing wealth maximization without

considering environmental or social impacts can result in unsustainable practices.
For instance, disregarding environmental regulations to cut costs can lead to
environmental degradation, reputation damage, and potential legal liabilities,
impacting long-term sustainability.
3. Social Inequality: In some cases, wealth maximization strategies might exacerbate
income inequality. If businesses primarily focus on enriching shareholders
without considering fair wages, employee benefits, or community welfare, it can
create social tensions that affect the sustainability of both the business and
society.

Firms balance wealth maximization with social responsibility in the contemporary

business landscape through several strategies:

1. Integrated Reporting: Companies are increasingly adopting integrated reporting,

which combines financial performance with social and environmental impacts.
This approach aligns financial goals with social responsibility by transparently
showcasing how business operations affect various stakeholders.
2. Corporate Social Responsibility (CSR) Initiatives: Many firms develop CSR
programs that go beyond profit-making to contribute positively to society. These
initiatives focus on areas such as environmental sustainability, community
development, ethical sourcing, and employee welfare, aiming to balance wealth
creation with social contributions.
3. Stakeholder Engagement: Firms actively engage with various stakeholders,
including customers, employees, communities, and investors, to understand their
expectations and concerns. By incorporating stakeholder feedback into decision-
making, companies can align wealth maximization with the social interests of
these diverse groups.
4. Ethical Supply Chains: Businesses are increasingly emphasizing ethical sourcing
and supply chain management. This involves ensuring fair labor practices,
 4

sustainable sourcing of materials, and reducing the environmental impact

throughout the supply chain.
5. ESG Integration: Environmental, Social, and Governance (ESG) criteria are being
integrated into business strategies and investment decisions. Firms consider ESG
factors when assessing risks and opportunities, aligning wealth creation with
responsible business practices.
6. Innovation for Social Good: Companies invest in research and development to
create products and services that address societal challenges. These innovations
not only generate profits but also contribute positively to society, reflecting a
balance between wealth maximization and social responsibility.
7. Regulatory Compliance and Advocacy: Firms adhere to regulations and advocate
for policies that promote sustainable practices and social responsibility. They
actively participate in shaping regulations to ensure that business operations align
with broader societal goals.

Overall, firms navigate the balance between wealth maximization and social
responsibility by integrating ethical considerations into their core strategies, engaging
stakeholders, and actively pursuing initiatives that benefit both their financial objectives
and the well-being of society.
References

https://www.accountingtools.com

https://zoetalentsolutions.com