 CVP under Uncertainty and the Manager's Utility FunctionSangphill Kim, Mohammad J Abdolmohammadi and Lawrence A Klein Review of Quantitative Finance and Accounting, 1996, vol. 6, issue 2, 133-47 Abstract: Cost-volume-profit analysis has focused on the firm's short-run output decision assuming that the manager maximizes the firm's objective function rather than his or her own. This study argues that the decision problem facing the manager is to determine not only the level of output, but also the level of investment in risky assets in such a way that the expected utility of the manager's own end-of-period wealth can be maximized when the manager's wealth function is dependent on vested interests both within and outside of the firm, possibly in competition with the firm. Through analytical work, it is demonstrated that a change in fixed costs of the firm affects not only the production decision of a manager, but also his or her decision to invest in risky assets. The direction of this fixed cost effect depends on the particular type of risk aversion displayed by the manager. From the analytical work five propositions are developed for empirical investigation in the future. Copyright 1996 by Kluwer Academic Publishers Date: 1996 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:6:y:1996:i:2:p:133-47 Ordering information: This journal article can be ordered from Access Statistics for this article Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee More articles in Review of Quantitative Finance and Accounting from Springer |
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