anti-Ralph petition

Doug Henwood dhenwood at panix.com
Thu Nov 2 16:04:29 PST 2000


Max Sawicky wrote:


>A little. It seems totally unlikely that conditions
>on the ground, so to speak, have caused the future profits
>that one could legitimately anticipate to fluctuate in the
>same way as share prices. Ergo the latter are not premised
>on the former, ergo managerial behavior premised on maximizing
>share value is not premised on profit maximization. Checkmate.

Not so quick, Grandmaster Flash. Over the long term, share prices magnify movements in underlying profits, but they do move in the same direction, and around the profit trendline as a center of gravity.

But we were talking about what motivates corporate managers. They want a high share price, and what gets a share price high is a high level of current profits and rosy investor expectations for the near future. We can argue about whether this is consistent with profit max over the long term - you could say that maximizing profit growth in the short term can steal from the future, by skimping on R&D, say - but there's not much question that to get the stock price up you have to make an appearance at least of getting current profits up.

Doug



More information about the lbo-talk mailing list