This paper proposes a model that a dealer or investor may employ in determining

• The potential investment value of a debt instrument,

• The potential gains in net after-tax yield which result from swaps, and

• The trade-off, effective, after-tax yield on a municipal vs a taxable corporate bond of the same quality or rating.

In two previous articles [11] and [12] a family of normative models of the individual's economic decision problem under risk was presented. At the same time, certain implications of these models with respect to individual behavior were deduced for a class of utility functions. This paper will show that these models also give rise to an induced theory of the formation and operation of firms under risk for the same class of utility functions.

In our earlier note, we drew attention to the problem of interdependency between the opportunity cost used as a discount rate in determining the net present values of the objective function and the optimal solution of a linear program. In expanding on our article, Lockett and Tompkins (L and T) rightly point to the need for an appropriate definition of opportunity costs.

Considerable attention has been given in recent years to studies of the cost of capital and investor preferences for dividends, but empirical analysis of the various theoretical propositions has been complicated by numerous difficulties associated with estimating the parameters in question. In many of the empirical studies, ordinary least squares has been the statistical method applied because, under certain assumptions, ordinary least squares produces unbiased estimates with a minimum of variance. However, the validity of one of the assumptions, namely, that all independent variables contain no measurement error, has been questioned by numerous writers. More specifically, it has been argued that investors tend to ignore temporary or random disturbances in current reported earnings. Thus, values of current earnings that are actually observed for the statistical study may be different from those values which ideally would be observed; i.e., they may contain measurement error, the size of which is reflected by the difference between the current reported earnings and the values on which investors presumably base their decisions. For example, in such least squares regressions as price on dividends and retained earnings, the impact of the measurement error is considered to fall mainly on the retained earnings, since dividends are thought to be relatively stable.

This paper describes the development and testing of a model of bank portfolio selection that considers variability of both income and gross asset levels as the risks involved in banking. In particular, the model is formulated as maximizing expected profit subject to risk constraints on wealth losses and the availability of liquid assets. The parameters for these constraints include the covariance matrices of rates of return on bank assets and deposit changes. Included in the latter category are fluctuations in business loans which are treated as negative deposits because, due to deposit feedbacks and the like, these can reasonably be considered exogenous to the short-run portfolio decision. Basically, the model is an extension of Markowitz's work [11] to incorporate problems associated with portfolios that include assets having imperfect markets and liabilities that are not completely under the control of the economic unit. As such, it is applicable (with minor institutional modifications) to the entire spectrum of financial intermediaries.

Tradtional Japanese disdain for business was overcome by making industrialization synonymous with the esteemed value of public service in the face of foreign economic competition. The alien corporate form of organization was made palatable by characterizing it as a family group which attracted traditional loyalties. Professor Hirschmeier attributes Japan's rapid industrialization at the turn of the century and her remarkable recovery after World War II to such pragmatic social compromises and uses them to identify and explain a uniquely Japanese “spirit of enterprise.”

As their enterprises expanded at the turn of the century, the leaders of two of the most famous Japanese zaibatsu worked continually to maintain the delicate balance between centralization and decentralization so essential to continued growth. Professor Morikawa chronicles and analyzes the most important organizational developments in these gigantic family firms.

Professor Yamamura offers a critical evaluation of the recently established Journal of Japanese business history and of five important new books on Japanese business, entrepreneurial, and economic history.

Faced with a labor shortage at a crucial point in the industrialization of Japan, tradition-oriented businessmen reacted not by raising wages but by longing for the authority-ordered labor relations of the past. Given this situation, the Meiji government moved to improve working conditions through non-economic means. Professor Taira shows that the debate over proposed factory legislation, along with the coming-of-age of a new generation of entrepreneurs, produced a “conversion” to modern management among businessmen of the late-Meiji generation.

Where are the Rockefellers, Carnegies, and Fords of recent Japanese history? Their absence may be explained by a lack of scholarly attention to the areas of entrepreneurship, business organization, and managerial practices. Professors Rosovsky and Yamamura review the historiography of Japan's industrialization and place the five articles in this special issue within the context of recent work in business and economic history.

Hikojirō Nakamigawa, the famous head of the Sanyō Railway and the huge Mitsui business combine, has long been characterized by historians as the epitome of the modern entrepreneur. In this article, Professor Yui, after a brief survey of the highlights of Nakamigawa's career, challenges the traditional interpretation by presenting a more balanced view of this controversial figure.

In analyzing the evolution of the modern Japanese system of industrial labor relations, Professor Evans argues that Japan's culture and history played dominant roles in the formation of employer-employee relations, and that convergence with western practices was Largely absent.

This paper discusses the use of simulation as a means of studying the operations of securities markets. To place simulation's role in the proper context, Section I begins with a review of public policy, research, and teaching considerations that have combined in recent years to create a growing need to improve our understanding of the operations of these markets. Following this is a brief discussion of the limitations of traditional price theory models to meet this need. Section II demonstrates the significant, yet largely untapped, potential of simulation in this regard.

Economic analysts following the mean-variance maxim have concentrated upon the problem of portfolios as financial assets with little or no effort being directed to the inclusion of productive liabilities. Accordingly, the usual portfolio analysis assumes the absolute level of funds available for investment as fixed and concerns itself only with the distribution of that given amount over candidate opportunities. In a wide variety of applications, neither part of this restriction is either essential or desirable. The management of insurance companies is a particularly important area that could benefit from an extension of portfolio techniques to accommodate liabilities as a variable factor. Subsequently, alternative levels of funding, through both underwriting and long-term debt, could be investigated for their attendant expected return and risk contributions to the corporation's overall financial posture.