Abstract

The article focuses on share price maximization as a tool for management decision making. The effectiveness of management decisions can be measured by their ability to achieve a specified goal. Frequently, this goal is to increase the price of the firm's stock. The advantages of pursuing this objective, sometimes referred to as share price maximization, are apparent to managers. Increasing stock prices eases equity financing, helps to prevent takeover bids and in general, produces the greatest economic wellbeing for the owners of the firm. Since share price maximization is widely accepted as a goal of management decision-making, it is surprising that few of the techniques commonly used to evaluate financial decisions are able to predict the direct impact of those decisions on the stock price. For example, some of the criteria used to judge investment decisions are payback and discounted cash flow. These measures tell managers whether their decisions will generate profits within a given number of years, whether they will achieve a certain rate of return, or whether they will have a positive net present value.