Behavioural Theories of the Firm

Behavioural theories of the firm consider alternatives to profit maximisation as a business objective. This study note explains.

3 reasons why a business may adopt objectives other than profit maximisation

1. Desire the gain and protect market share
2. Social / ethical / environmental objectives
3. Need to generate cash-flow during economic recession

2 consequences of this for different stakeholders

1. Possible fall in the share price and lower dividends in the short term for shareholders
2. Consumers may pay lower prices if a firm moves away from profit maximisation

1 example of a business adopting such objectives

1. Pubs having to focus on growing revenue and maintaining cash-flow when adopting to changing consumer spending patterns and preferences (e.g. competing with low-priced alcohol available from the supermarkets