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GOALS OF FIRMS

GOALS OF FIRMS. Profit maximisation - short and long term Stable dividend payouts Growth in capital value Sales revenue maximisation Maximisation of capital assets Maximisation of market share Ethical goals Price stability Multiple goals Satisficing objectives.

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GOALS OF FIRMS

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  1. GOALS OF FIRMS • Profit maximisation - short and long term • Stable dividend payouts • Growth in capital value • Sales revenue maximisation • Maximisation of capital assets • Maximisation of market share • Ethical goals • Price stability • Multiple goals • Satisficing objectives

  2. THEORIES OF THE FIRM • CLASSICAL - Simple maximisation approach (profits) • MANAGERIAL - Constrained maximisation approach - Baumol - Marris - Williamson • AGENCY - Firm represents contracts as between principal and agents •   BEHAVIOURAL - Satisfying approach

  3. BAUMOL MODEL • Assumption: to maximise sales subject to a profits constraint • Leads to a higher level of output than in the simple maximisation approach • Can approximate to profit maximisation approach in certain circumstances • if profits constraint is very high in recession where marginal cost is very low • Different reactions to cost increases, taxation etc.

  4. Peter Collins

  5. MARRIS MODEL Assumption: to maximise growth in capital assets subject to a security constraint Security constraint represents the fear of possible take-over and is measured by the valuation ratio Valuation ratio is measured by the ratio of the stock market valuation of company assets relative to book asset value If ratio < 1, then company is in danger of take-over Ability to sustain growth without risk of take-over depends on the quality of management

  6. Peter Collins

  7. WILLIAMSON MODEL • Assumption: to maximise managerial utility function subject to a profits constraint • Managerial Goals • Salary • Security • Dominance • Professional Excellence • Expense Preferences • Staff • Emoluments • Discretionary Profit • U-form and M-form of organisation

  8. OTHER GROWTH MODELS • Galbraith       - technostructure • Downie    - technology restraint        - transfer and innovation mechanisms • Penrose       - managerial restraint       - resources and services   - role of diversification       - internal and external obstacles       - internal and external opportunities

  9. BEHAVIOURAL THEORY OF THE FIRM • Based on coalition of different interest groups • Stakeholders: • Shareholders • Management • Workers • Bankers • Customers • State • Suppliers • Satisficing Behaviour - examples of compromise

  10. BEHAVIOURAL THEORY (Con) • Organisation seen as coalition of differing interest groups MANAGERS                                                SUPPLIERS SHAREHOLDERS                                      CUSTOMERS WORKERS                                                  GOVERNMENT SUB GOALSPRODUCTION                                       MARKET SHARE INVENTORY                                           PROFIT SALES

  11. MAIN CONCEPTS • SIDE PAYMENTS  • SEQUENTIAL V SIMULTANEOUS ACTIVITY • ORGANISATIONAL SLACK • ASPIRATIONS AND NON OPERATIONAL GOALS • SATISFICING BEHAVIOUR • SEARCH ACTIVITY • STANDARD OPERATING PROCEDURES

  12. BEHAVIOURAL THEORY (con) Summary • QUASI RESOLUTION OF CONFLICT  • UNCERTAINTY AVOIDANCE • PROBLEMISTIC SEARCH • ORGANISATIONAL LEARNING Problems • Too short term • Views firms too passively • Lack predictive value

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