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This 4-page paper discusses firm model theories from Williamson, Baumol and Marris. Bibliography lists 2 sources.
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4 pages (~225 words per page)
File: D0_MTmodemgmt.rtf
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are those introduced by Baumol in 1959, Marris in 1964 and Williamson, also in 1964. The three of these models are separated by the managers assumed objectives (Ricketts, 2002) (with
a minimal profit constraint in his model), Marris pointed out that growth was maximized through sales (adding a valuation ratio constraint to recognize shareholder pressure) (Ricketts, 2002). Valuation ratio, by
the way, is the market value of outstanding shares divided by the firms book value - and too low a valuation ratio meant a potential risk of takeover unacceptable to
management (Ricketts, 2002). Baumol pointed to the fact that most managers interests are tied to one particular variable, that of sales revenue.
Williamson, in the meantime, pointed out that managers maximize a utility function (such as "staff) to grow (Ricketts, 2002). The Williamson model points out that variables such as profit
and staff expenditure (leading to a higher prestige) are in the typical managers utility function. The Williamson model also focuses on the fact that the more spent on manager utility,
the higher net profit is likely to be produced. Marris pointed out that, similar to Baumols sales maximization model, firms existed
to make profits (Lawrivsky, 1984). But unlike Baumol, Marris pointed out that with, the rise of functional specialization, managers that had little (if any) beneficial interest in a company couldnt
be depended on to pursue only profits for the company (Lawrivsky, 1984). Managers, therefore, would be more motivated by power, salary and prestige (Lawrivsky, 1984). Marris theory pointed to the
idea that companies controlled by professional managers would end up with lower profits and be more risk-averse, though would grow faster and retain a larger earnings fraction than what would
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