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, the people running large public corporations say that they are maximizing something else entirely: earnings per share (EPS). Perhaps this is a mistake. No matter. We take 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 issuance and repurchases, M&A payment method, cash accumulation, and capital budgeting.