Early studies on the effect of holding company affiliation on bank performance yield some curious results (see [9], [11], [12]). Specifically, these studies did not find that holding company affiliation results in changes in capital-asset ratios or bank profitability.

In his comment [1] Professor Frankle raises four potential problems that may have had an influence on the empirical results that I obtained when testing my model describing convertible bond prices [2]. Two of the points are interrelated and do much to explain the problems with the original empirical work. The other two points probably did not have an influence on the final outcome.

New stock financing is assuming increasing significance as a source of funds for private firms. The problem of management of external financing has grown as well. As a practical matter, financial managers must depend on the assistance of underwriters with respect to pricing and distribution of new corporate stock. But recent changes, some set in the context of the capital asset pricing model, imply systematic underpricing of new securities. If these charges are true, the financial manager is faced with the dilemma of paying monopsony profits, or accepting the cost and risk involved in taking the issue to market without the investment banker, or seeking an alternative source of funds. In any event, the process of marketing new equity depends on the relationship among the many characteristics unique to the firm and that firm's cost of equity capital. This paper discussed these interrelated issues.

Two prominent views pertaining to measures of risk aversion can be found in the literature. First, Arrow [2] and Pratt [3]developed risk aversion measures based on the curvature characteristics of the individual investor's utility for wealth function. If the investor's utility for wealth function is given by V(W), then

are the Arrow-Pratt measures of absolute and relative risk aversion, respectively. The investor is risk averse or a risk lover as r(W) and r* (W) are positive or negative. The investor exhibits increasing, constant, or decreasing absolute risk aversion as while he exhibits increasing, constant, or decreasing relative risk aversion as .

This study describes the 1920s movement (spearheaded by Herbert Hoover) to reduce unemployment by reducing fluctuations in business production and investment. Although the efforts had very limited success, they anticipated later attempts to manage prosperity for the economy as a whole.

Despite attempts by the state legislature to fashion the charter of the Pennsylvania Railroad in such a way as to insure a high degree of managerial accountability to the board of directors and to make the corporation broadly accountable to the public, things turned out very differently. The volume and complexity of managerial decisions quickly brought a centralization of power in the hands of the road's professional managers as the board atrophied, and the economic and political power of the road and its dominant figures (J. Edgar Thomson and Thomas A. Scott) negated much of the principle of public accountability.