ACCA Applied Knowledge · Business and Technology · Stakeholders in business organisations
Which statement best describes the shareholder theory of the firm?
Shareholder theory says managers should mainly maximise returns to the owners while obeying the law and ethical custom. Balancing the interests of all affected groups equally is the stakeholder approach, not the shareholder one.
- AManagers should act mainly to maximise returns to the owners within the law and ethical customCorrect
- BManagers should balance the interests of all groups affected by the firm equally
- CManagers should act mainly to maximise employee welfare
- DManagers should act mainly to meet the aims of government regulators
Explanation
Shareholder theory, associated with Milton Friedman, holds that the business exists to generate wealth for its owners, subject to law and ethical custom. Balancing all groups equally is the stakeholder view, so option 2 is wrong.
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