There are three main managerial theories described in the document: 1. Baumol's Model of Sales Revenue Maximization suggests that managers pursue sales maximization over profit maximization to boost their prestige, power, and job security. 2. Marris's Theory of Managerial Enterprise notes the separation of ownership and management allows managers to set goals that benefit themselves rather than owners, such as prioritizing growth over profits. 3. Williamson's Theory of Managerial Discretion discusses how managers have discretion over decisions and may not always act in the owners' best interests.

2. Managerial Theories

3. Managerial Theories
There are three basic managerial theories.
- Baumol’s Model of Sales Revenue
Maximization.
- Marris’s Theory of Managerial
Enterprise.
- Williamson’s Theory of Managerial
Discretion

4. Baumol’s Model of Sales Revenue
Maximization
W.J.Baumol suggested
“Sale Revenue Maximization as an
Alternative goal to profit maximization”

5. Rationale of the Hypothesis
1.Managers are separated from the
ownership in modern times.
2.This has given power to managers who
pursue their own goals rather than the
goal of owners.
3.Manager ensure a minimum acceptable
level of profit to satisfy the shareholders.
But would pursue a goal which enhances
their own utility.

6. Why Managers attempt to
maximize sales rather than profits.
1. Incomes of top executives are closely related
to sales rather than profits.
2. Banks and financial institutions are impressed
by the amount of sales and treat this as a
good indicator of the performance of the firm.
3.Large and continuing sales enhance prestige of
the Managers, who ensure regular
distribution of dividends.

7. 4. A steady performance with satisfactory
amount of profits is preferable to irregular
spectacular profits in some one or two years.
Having shown high profits, if the level is not
maintained, it will lead to discontent of
shareholders.
5. Large sales strengthens the competitive
power of the firm (competitors), while low or
declining sales diminishes this power.

8. Basic Assumption
- A firm decision making is limited to a single period.
During this period, the firm attempts to maximize
total revenue.
- Sales revenue maximization is subject to provision
of minimum required profit to ensure a fair dividend
to shareholders, thus ensuring stability of his job.

9. Marris’s Theory of Managerial
Enterprise.
“In corporate firm, there is a structural division
of ownership and management which allows
managers to set goals which do not necessarily
confirms with those of the owners.”

10. Owners
The shareholders are the owners of
organizations. Their utility functions
includes variables such as:-
- Profits
- Size of output
- Size of Capital
- Market Share
- Public Image

11. Managers
The managers have other ideas. Their utility
function include variables such as:-
- Salaries
- Job Securities
- Power and Status

13. Important points
- The owner want to maximize their utility while
the managers attempt maximization of their own
utility.
- Both the utilities do not necessarily clash,
because the most of the variables of both the
utilities have a strong relationship with a single
variable
i.e. size of the firm.
- It is reasonable to assume that maximizing the
long run growth of any indicator is equivalent to
maximizing the long run growth rate of the others.

14. Important points
- Owners being interesting in the growth of the
firm want maximization of the growth of the
supply of capital, which is assumed to maximize
the owners utility.
- Managers want to maximize rate of growth of
the
firm rather than the absolute size of the firm
believing that growth of the demand for the
products is an appropriate indicator of the
growth of the firm.

15. Williamson’s Theory of Managerial
Discretion

34. Leadership styles