Marries Theory Introduction A coherent and integrated theory of the growth of the firm has been developed by Marries

His theory is applicable to a corporate firm owned by share holders but controlled by Managers. Therefore, the growth in the Market value of equity share of a firm as a proxy variable to specify the Profit Maximisation of the rate of growth as a overall growth of firm. So that Stock Market valuation is the main constraint in his Model.

The mechanism of the Growth of the firm in Marries frame work can be explained with the help of a few relationships: The Steady State growth condition The growth in demand function The growth of supply function The cost expansion path The Steady State Growth Conditon: The implication of the Steady State Growth is that both supply and Demand sides of the firm grow over time at the same rate. If not supply >Demand or S<D both these are unsound.

The Growth in Demand function:

Every firms demand low in first, then rises rapidly, after that it will be stagnant and then deadlines. So that it is one side of the growth of the firm. Growth demnad function is specified as: Gd = f(d)------ where gd = Growth of Demand d= rate of sucessful diversification f= functional relationship The Growth of Supply function: The Growth of supply means an Increase in the assets of the firm. The growth rate of assets is the ratio of new investment to capital employed. New investment depends on finance. gs=@p where @ is the amount of new investment financed per unit of profit earned.

The Cost Expansion Path: It is the rate of successful diversification that determines the growth of demand of the firm. But diversification depends on cost of expansion. If cost expansion is more rate of profit declines. So rate of diversification directly related to K/O ratio and inversely related to the profit margin. The relationship is defined as cost of expansion for the firm.

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Points G1, G2, G3 are maximum attainable growth rates Points P1,P2,P3 are levels of Maximum attainable profit rates Under three given situations of the demand growth.

This theory is quite realistic and fairly exhaustive. The material presented above are only in abstract of his theory rather than a full description.