Working Paper: NBER ID: w31125
Authors: Itzhak Bendavid; Alexander M. Chinco
Abstract: Textbook theory assumes that firm managers maximize the net present value of future cash flows. But when you ask them, the people running large public corporations say that they are maximizing something else entirely: earnings per share (EPS). Perhaps this is a mistake. No matter. We take managers at their word and show that EPS maximization provides a single unified explanation for a wide range of corporate policies such as leverage, share issuance and repurchases, M&A payment method, cash accumulation, and capital budgeting.
Keywords: No keywords provided
JEL Codes: G30; G31; G32; G34; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Managers' perception of EPS (L25) | Leverage decisions (G11) |
| Increase in leverage (G32) | Managers' leverage evaluation (G32) |
| Need to enhance EPS (E69) | Share issuance and repurchase decisions (G34) |
| Desire to maintain or enhance EPS (E65) | M&A payment method choice (G34) |
| EPS considerations (H55) | Cash accumulation decisions (D25) |
| EPS (C87) | Capital budgeting decisions (G31) |