The #1 rule in corporate finance—that you should ignore "earnings per share"—is actually flat-out wrong.
SSRN · March 18, 2026 · 6425043
The Takeaway
For decades, business schools have taught that focusing on Earnings Per Share (EPS) is a logical fallacy, but this paper argues that a 'Max EPS' approach actually provides the optimal solution for debt, investment, and buybacks. This paradigm shift validates the real-world behavior of CEOs and practitioners that academic theory has long dismissed as irrational.
From the abstract
There are three classic problems in corporate finance: capital structure, real investment, and payout policy. In three companion papers, we characterize the max EPS solution to each one. The max EPS approach delivers an optimal leverage ratio even in the absence of frictions, an investment rule based on comparing yields rather than using a risk-adjusted discount rate, and a payout policy where accretive buybacks are preferred to neutral dividends. Our max EPS model draws a bright line between gr