Explain how maximizing firm value will usually result in the maximization of
shareholder value as well.

Question

Quizplus · Accepted Answer

The Answer is Bond investors are not stupid, and they will pay less (i.e., demand a higher interest rate)today if they suspect management might ignore their needs in the future. This will erode firm value, which, in effect, reduces shareholder value since there is less cash flow to be distributed to the shareholders.

Explain How Maximizing Firm Value Will Usually Result in the Maximization