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This is an exploratory paper. In particular, it consists of explorations conducted around some of the possibilities that might be offered for capital budgeting via recently developed methods, e.g., chance-constrained programming, linear programming under uncertainty, etc.
In a recent article in this Journal, Jacob B. Michaelson and Robert C. Goshay (hereafter M-G) argue that the rule of maximizing share values does not adequately explain the portfolio selection practices of financial intermediaries. Moreover, M-G suggest that their analysis “has ramifications that reach far beyond financial intermediaries.” In particular, they state that “the asset holdings of conglomerate firms and the rationale for mergers may not be fully explicable in terms of maximizing behavior.”
The substantial growth of the mutual fund industry during the last few years has attracted the attention of students of finance, economics, and public policy alike. Net assets managed by such funds have grown from approximately $450 million in 1940 to more than $38 billion by June of 1966. During 1965 the mutual fund industry funneled some $5. billion of new (primarily equity) funds into the capital markets; more than twice the $2. billion in new equity raised by all non-financial United States corporations during the year. Growth of the industry has not been uniform, however, but has been concentrated among a relatively small number of highly successful funds.
Most businesses sell on credit. To administer credit, such companies set credit granting, term, and collection policies. This article analyzes one aspect of credit granting policy: the determination of the optimal number of credit applicants that should be accepted by a creditor. The emphasis in the relevant literature traditionally has been on techniques for estimating a credit applicant's probability of default and, to a lesser degree, on the decision to accept an applicant given his estimated probability of default. Cumulatively, these two decisions are crucial to any business selling on credit.
In the manner of the Creole tradesmen of Louisiana, whose lagniappe to their patrons is legendary, the Editor offers a similar bonus to readers of the Review. Instead of trifling presents added to a purchase, however, our lagniappe will be notes and documents illustrative of the evolution of business enterprise.
A case study of two ventures undertaken by a Belgian company in Russia focuses upon several of the major problems experienced by foreign entrepreneurs under the Czars at the turn of the century.