Marris (1964) assumed management to

Marris (1964) assumed management to be motivated towards maximising the growth in demand for the firm’s output.12 The model is therefore dynamic in nature emphasizing the proposition that management would rather be associated with a growing firm than simply a large firm, as growth brings financial rewards, job security, prestige and status. Association with a growing firm will also improve career prospects within and outside the existing firm.

A particular feature of the model is the assumption that shareholders are also interested in growth so long as the growth in sales is matched by a growth in the firm’s capital (assets, stocks and liquidity), as shareholders will then also gain through the increased value of their shares. Marris therefore proposed that the goals of management and shareholders could be reconciled through the growth of the firm, reconciliation coming about through the firm achieving balanced growth whereby productive capacity (the firm’s capital) and market demand grow at the same rate. Reconciliation of interests therefore ensures the firm avoids either excess demand over productive capacity or excess capacity over demand.

In line with other managerial theories, management is faced with a profit constraint. To maintain job security, which is assumed a major aim, management must keep the market price of shares and the share dividend at a satisfactory level.With share prices falling relative to the capital value of the firm there is a risk of takeover and a loss of job security.

The basis of the model can be illustrated in Figure 6.4. As growth increases in Figure 6.4 towards G2, the rate of profit is assumed to increase, although at a decreasing rate. At this stage the firm is benefiting from increased scale economies and profits can be reinvested in productive new investments to promote further growth. However, the rate of profit eventually declines as growth can only be maintained by further price reductions and spending excessive amounts on other activities including advertising to promote further growth. It is also likely that, in an attempt to maintain growth, the firm increasingly moves into less profitable sidelines and investments, including takeovers. Such diversification is likely to be at the expense of profit. So long as the rate of profit is increasing it is likely that the ratio of the share price to the
firm’s capital value will also rise. Once the profit rate starts to fall then the ratio will eventually decline, increasing the possibility of takeover and endangering job security

Figure 6.4 shows a minimum profit constraint.Management therefore runs the risk of either growing at too slow or too fast a rate. That is, at a rate of growth below G1 or above G3, managers risk job insecurity. Given that managers are assumed to gain satisfaction from growth rather than profit, we can assume a growth rate closer to G3 ตาราง 6.4

The model emphasises profit as a source of investment to promote growth. It is therefore in the interest of management to reinvest a high proportion of profit rather than provide shareholders with high dividends. Management therefore seeks a high retention ratio of realised to distributed profit. However, in so doing, this may diminish the share price and increase the risk of takeover. To ensure security, management therefore seeks a retention ratio that is acceptable to shareholders.

We therefore have an overall principle of balance in that the firm is assumed to seek a balance between the rate of growth of demand and the rate of growth of the firm’s assets subject to providing shareholders with an acceptable dividend payment or retention ratio. In satisfying shareholders, and ensuring job security, management may therefore be willing to sacrifice a degree of growth.

A major feature of Marris’s model is the observation that the goals of management and shareholders are not so wide as implied by other managerial theories, as both parties are interested in growth. That is, management is concerned with the growth of sales and shareholders with the growth of the firm’s capital; reconciliation can be achieved through balanced growth.

A further significant feature of the model is the inclusion of the firm’s financial policies into the decision-making process.However,Marris does not clearly specify why shareholders should necessarily prefer capital growth rather than profit, and, in line with other managerial theories, there is no real analysis of the influence of oligopolistic interdependence.13