Modeling Managers As EPS Maximizers

Textbook theory assumes that firm managers maximize the net present value of future cash flows. But when you ask them, real-world firm managers consistently say that they are maximizing something else entirely: earnings per share (EPS). Perhaps this is a mistake. No matter. We take firm managers at their word and show that EPS maximization provides a single unified explanation for a wide range of corporate policies such as leverage, share repurchases, M&A payment method, cash accumulation, and capital budgeting