Events

Prof. Itzhak Ben-David
Professor of Finance
Fisher College of Business
The Ohio State University

For over a century, earnings-per-share (EPS) has been the primary performance metric in corporate reporting, analyst forecasts, and executive compensation contracts. We propose that managers use corporate policies to maximize EPS, which can therefore arise absent frictions. Our simple theory explains many stylized facts in the cross-section and time-series: leverage (including leveraged tax-exempt firms and zero- leverage firms), cash holdings, repurchases, external versus internal growth, payment method (cash versus equity), and dividends. Our results indicate that managers’ objective is likely misspecified by a large body of literature.