Revenue vs. Profit Maximization: Differences in Behavior by the Type of Control and by Market Power

Asset Characteristics and Corporate Debt Policy: An Empirical Test

“…Boudreaux (1973) and Smith (1976) find that the policy decisions made by the M-C firms smoothed income significantly more often than the policy decisions made by the 0 -C firms. Amihud and Kamin (1979) show that sales maximization is more prevalent among the M-C firms, compared with the 0 -C firms. For further empirical evidence, see Nyman and Silberston (1978).…”

“…O n the other hand, Amihud and Lev (1981) argue that since managers' employment risk cannot be effectively diversified in their personal portfolios, managers have an incentive to reduce their employment risk by other means, such as firm diversification which reduces the firm's nonsystematic risk.3 However, the discretion managers can exercise in following their own preferences differs across firms. Amihud and Lev show that the degree of the firm diversification is higher for the M-C firms than for the 0 -C Thus, ceteris paribus, we would observe a positive association between the firm diversification and financial leverage and an inverse association between the firm's nonsystematic risk and financial l e~e r a g e .~'~ Growth Opportunities Myers (1977) describes the firm's future investment opportunities as call options.…”

“…During the last two decades, various new managerial theories of the firm (see, e.g., Jensen and Meckling, 1976;Myers, 1977;and Amihud and Lev, 1981) have evolved in the context of agency theory. These new views bring more realism to the theory of capital structure by addressing agency problems in the context of the firm which is viewed as a nexus of contracts among various parties, where the contractual relationship involves incentive conflicts arising from the pursuit of self-interest.…”

The effect of ESOP adoptions on corporate performance: are there really performance changes?

“…These costs may occur in explicit ways, such as the excessive use of prerequisites, or in implicit ways, such as suboptimal decision-making. Manager-controlled firms are more likely to maximize sales rather than profits, have a lower profit rate but less variability, engage in activities to smooth income, and engage in conglomerate mergers (Smith, 1976;Nyman and Silberston, 1978;Amihud and Kamin, 1979;Amihud and Lev, 1981). These activities have the potential of shifting wealth from the owners to the managers, unless constrained by owners.…”

An Increase in Per Unit Cost: The Response from a Sales Maximizer and a Profit Maximizer

“…While Monsen *Address correspondence to this author at the Department of Economics, Finance, and Decision Sciences, School of Business, University of North Carolina at Pembroke, Pembroke, NC 28372, USA; Tel: (910) 775-4265; Fax: (910) 521-6750; E-mail: lydia.gan@uncp.edu and Downs [6] observed that the interest of firms that are controlled by management does not necessarily coincide with owners' preferences, Boudreaux [7] and Palmer [8] proved that managers in management-controlled firms prefer activities that lead to lower risk than those resulting from owners' decisions in owner-controlled firms, given that both managers and owners are having the identical expected utility-maximization. Furthermore, Amihud and Kamin [9] found that revenue maximizing behavior is more prevalent among management-controlled firms than among ownercontrolled ones, and more prevalent among oligopolistic firms than among particularly competitive firms. Moreover, the market power of firms was found to have a greater influence on the firms' behavior than their type of control.…”