Toward an Axiomatic Theory of Corporate Growth

Investment and financing decisions are generally made under the assumption of a given objective function. Deriving growth from the value of a firm, however, requires the initial size and discount rates to be known a priori. The presentation of financial planning as a standard dynamic optimization problem usually works with overly restrictive assumptions. As an alternative, it is proposed to arrive at a decision on the basis of axiomatic principles of admissibility and efficiency. Conditions for the existence of a growth program satisfying these principles are defined. The maintenance of capital is an important side constraint. Investment and financing programs, payoffs, (intrinsic) corporate value and interest rates result as endogenous magnitudes of an axiomatic model which is specified for the cases of certain and of uncertain expectations.