Alternative Models of the Corporate Enterprise: Growth Maximization and Value Maximization, an Empirical Test

Abstract

There are two primary views regarding the economic behavior of large corporate enterprises. The dominant view is that corporate managers act as agents of the shareholders and strive to maximize the value of the firm's common stock. The alternative view is that, with separation of ownership and control, managers will strive to maximize the rate of growth of corporate assets subject to a cost of capital or valuation constraint. The purpose of this paper is twofold: First, to develop growth and value models of the corporate enterprise and examine the implications of the alternative criteria for firm