Using the Table Found Below

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The Answer is a. The classical view (with particular currency in U.S. business schools) is that since the shareholder is the last to receive income from the company, they will be forced to satisfy all of the earlier stakeholders (customers through to the government) so as to allow the shareholder to receive a competitive income. By maximizing shareholder value, then, we can achieve a Pareto optimal outcome in terms of the other stakeholders. In other words, for example, if in a competitive labor market shareholders do not compensate workers adequately, the firm will be unable to attract employees. So too for the relationship between shareholders and other stakeholders.
b. China is a much more complex process since the government can be a shareholder, taxer, lender, supplier, and controller of labor markets all at once. When we seek to maximize the interest of a shareholder in this case, the other (minority) stakeholders may suffer. Conflicts of interest can arise.
c. Based on the answer in (b) it would appear that the key driver, The role of the Government, creates complex problems and (as we shall see) complex solutions when operating in a mixed economy such as China.
Income Statement for a Typical Firm in an Economy*

\begin{array}{lll}&& ext { STAKEHOLDERS } \ ext {Revenues }& ext { US\$ 2.98 (billions)}& ext {Customers }\ ext {Domestic Sales}& 2.94 \ ext {Export Sales}& .04 \\ ext {Costs of Production }& US\$ 2.27 \ ext {Materials}& 1.4& ext { Suppliers } \ ext {Wages, Salaries}& 87& ext {Employees and Managers }\\ ext {Depreciation}& US\$ 20\ ext {Operating Income }& US\$ 509\ ext {Interest to Bondholders }& US\$ .09& ext { Creditors }\ ext {Taxes }& ext { US\$ O (On "tax holiday")}& ext { The Government }\ ext {After Tax Profits }& US \$ .42 & ext { SHAREHOLDERS }\\end{array}

* Assume this is a 50/50 joint venture with a foreign company and that inventories decreased during the period by 0.14.

Using the Table Found Below

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Using the Table Found Below

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