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Free «SWM and SCM Model» Essay Sample

Objectives:

This essay compares and contrasts between Shareholder Wealth Maximization (SWM) Model and Stakeholder Capitalism Model (SCM).

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Introduction

Shareholder wealth maximization (SWM) model main's goal is to increase the wealth of its shareholders by paying dividends and causing the stock price to enhance. Stakeholder Capitalism Model (SCM) is a market system in which companies treats the interests of all major stakeholders generally equally, rather than openly favoring investors (Landry, 2009).

Shareholder Wealth Maximization Model and Stakeholder Capitalism Model

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SWM and SCM are both models that seek to maximize the wealth of their shareholders. Management of shareholders' wealth is the central goal of management in the Anglo American World whereas in the stakeholder capitalism model it is the central goal of management in the Japanese and continental European markets. The SWM model presumes a universal truth that the stock market is efficient such that the performance of managers can be reflected from the movement of stock prices rapidly. The SCM model does not presume that equity markets are either efficient or inefficient. The inefficiency does not really matter; because the firm's financial goals are not entirely shareholder-oriented, because they are limited by other stake-holders.

 
 
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SCM model presumes that long-term shareholders having dominating interests are supposed to control corporate strategy, relatively to the transient portfolio investor. The SCM model establishes that there are other groups connected to a company apart from equity owners and that stakeholders have a legal voice in the administration of a corporation (Hawley and Williams, p.97).

Shareholder wealth maximization model primary's goal is to enhance its shareholders wealth by increasing stock price and paying dividends whereas  stakeholder capitalism model goal is to capitalize on the return of  its shareholders, as calculated through the total dividends and capital gains, for a given rate of risk.SWM model defines risk as a universal truth whereas SCM defines it in an extremely qualitative sense.

Conclusion

Shareholder wealth maximization model and Stakeholder capitalism model have different approaches in attaining the goal of management.

   

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