We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Shareholder Wealth?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Shareholder wealth is the collective wealth conferred on shareholders through their investment in a company. Members of the board have a fiduciary duty to the shareholders and a responsibility to protect their investment by running the company sensibly and in line with generally accepted practices. Failure to do so can result in penalties, including shareholder votes to remove board members as well as fines and jail time in some cases.

Each shareholder holds a small portion of the company. Issuing more shares will dilute shareholder wealth, while providing dividends to existing shareholders will increase it. The value of the company waxes and wanes over time, causing corresponding rises and falls in shareholder wealth. Investors who purchase stock may take a long position with the goal of profits at a future date, or they may intend to capitalize on their wealth by selling the stocks to another party and making money on the transaction.

Companies can determine shareholder wealth by looking at overall company value in terms of the current value per share and number of stocks issued. Sometimes board members must make strategic decisions that will temporarily reduce shareholder wealth, such as investing in new facilities or technologies. These investments will add value later, and are acceptable to shareholders because they demonstrate a desire to grow the company. Bad business decisions may result in losses with no projected future gain, and can be a cause for concern.

The fiduciary duty enshrined in law can also be an important part of the philosophy board members use to run the business. They do not focus on making the company larger for its own sake, but on growing the company to benefit the shareholders by increasing their wealth. They must undertake decisions on behalf of a group of people who are not involved with daily operations and have a very strong interest in the company's future. Sometimes this requires balancing conflicting needs, like wanting to pay dividends but also wanting to reinvest to help the company grow and increase share value.

In shareholder wealth maximization, the business strategy focuses on building wealth for shareholders as a first priority, even if this leads to decisions that may not always immediately benefit the company itself. The members of the board must be careful because they do not want to undermine the company and set it up for future collapse, but they also want to maintain shareholder satisfaction. This can sometimes be a tightrope act, especially because some decisions may have unforeseen consequences, as not every business investment has a predictable outcome.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By Vincenzo — On Jan 12, 2015

@Soulfox -- Maybe, but a good board will take those steps that will keep the company profitable in the long term. No board should get so obsessed with shareholders wealth that it focuses on short term gain rather than long term viability.

You can probably name a few companies that have traded in that long term security for short term game. You will notices those companies failed. There is a lesson to be learned there.

By Soulfox — On Jan 11, 2015

A common problem is that boards of directors often think it is their duty to maximize shareholder profits by any legal means necessary. That is completely different from running a company sensibly and in line with generally acceptable practices.

We could call this strategy maximizing shareholders wealth, but the problem with that is that short term gains are generally more acceptable than what is good for the long term health of the company. Doing something that generates a lot of money in a hurry is a lot sexier than taking measures that build up value over time, so guess which tactic some boards use? That's right. The one that is flashy and generates a lot of cash in a hurry.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.