Modeling Managers As EPS Maximizers

Fisher College of Business Working Paper No. 2023-03-006

Charles A. Dice Center Working Paper 2023-06

80 Pages Posted: 7 Apr 2023 Last revised: 3 Apr 2024

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Alex Chinco

City University of NY, Baruch College, Zicklin School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2024

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 involving leverage, share repurchases, cash holdings, and capital budgeting.

Keywords: Earnings Per Share, Corporate Policies, Earnings Yield, Value vs. Growth, Leverage, Equity Issuance, Share Repurchases, Cash Holdings, Capital Budgeting, M&A Payment Method, Accretion, Dilution

JEL Classification: G30, G31, G32, G34, G35

Suggested Citation

Ben-David, Itzhak and Chinco, Alexander, Modeling Managers As EPS Maximizers (April 1, 2024). Fisher College of Business Working Paper No. 2023-03-006, Charles A. Dice Center Working Paper 2023-06, Available at SSRN: https://ssrn.com/abstract=4408581 or http://dx.doi.org/10.2139/ssrn.4408581

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Alexander Chinco

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

HOME PAGE: http://www.alexchinco.com

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
375
Abstract Views
1,502
Rank
141,481
PlumX Metrics