Itzhak Ben-David (Zahi)
Finance Seminar: Itzhak Ben-David
The Department of Finance invites you to a research seminar with Professor Itzhak Ben-David (Zahi), Ohio State University
- Time
- Place
- Aud. B
- Kalender
- Add to my calendar
Itzhak Ben-David (Zahi)
The Department of Finance invites you to a research seminar with Professor Itzhak Ben-David (Zahi), Ohio State University
Modeling Managers As EPS Maximizers
Abstract:
Textbook corporate-finance models assume managers maximize the NPV (net present value) of expected future equity payouts. But, in practice, the people running large public companies often seem more concerned with increasing EPS (earnings per share). Perhaps this is a mistake. Or maybe EPS growth is good second-best proxy for value creation. Whatever the reason, we show that the simplest possible EPS-maximizing model can explain a number of important corporate policies such as firm leverage, share repurchases, cash accumulation, and M&A payment method. A firm will follow one of two different approaches to maximizing EPS, depending on whether its earnings yield is above or below the riskfree rate. We document strong empirical support for our model’s predictions.