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Essay / Research Paper Abstract
This 5 page paper looks at the growth maximization model developed by Marris, explaining the theory itself, considering what it adds to the study of the firm and looking at how it may be applied in the modern commercial environment. The bibliography cites 4 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEmarrisg.doc
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Unformatted sample text from the term paper:
being given to the alternative paradigm of the core purpose of the business being that of profit maximization. Marris built on the ideas of Baumols (1967) model, which hypothesized that
businesses would be better undertaking a strategy of revenue maximization rather than profit maximization. Marris developed an alternative approach; that of growth maximization. It may be argued, that even under
profit maximization model, there will still be a desire for growth, as it is only with growth that profits can increase. Within this model it is assumed that there
are two separate groups of stakeholders; the owners and managers. In traditional approaches it is assumed that the managers of a corporation will act as agent for the shareholders, and
as result of the aim of maximizing the value of the firms common stock. The alternative approach, which is adopted by Marris, sees the management and the owners as more
separated, where management of a firm will seek to maximize the growth rate of the organization, constrained by the cost of capital and evaluation constraints (Herendeen and Schechter, 1977).
To start consideration of this model the different objectives of the owners and managers needs to be defined. Owners, shareholders, will usually make an investment in order to realize a
profit, desiring the value of the capital invested in the firm to increase. Shareholders will often choose an investment based on those which they believe will maximize their own investment
and therefore wealth. Therefore, the aim of these stakeholders is the maximization of the stock market value, referred to as the market value of the firm. By comparison the management
of a firm are likely to have different objectives. In some instances they may also be owners, but even if there is a shareholding this is likely to be relatively
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