During the past two decades, corporate managements have been increasingly Interested in growth through mergers and acquisitions. This external growth trend has been accompanied by the development of several merger strategies and philosophies. As a result, merger literature is frequently concerned with concepts such as price-earnings ratio strategy [13] and merger synergy. Synergy may be operational (e.g., the development of marketing or production economies) and/or financial in nature. Although financial synergy may produce “real” benefits (e.g., a lower cost of capital or increased cash flows), it is the general custom today to associate financial synergy with temporary [8], pecuniary [10], or instantaneous [9] earnings per share benefits.

This paper examines the random-walk hypothesis in the forward exchange market by applying spectral analysis to the three-month forward rates for dollars against sterling in the period 1961–1967.

The current literature or business finance states that debt is a cheaper source of capital than stock (tending to reduce the firm's cost of capital), because interest is deductible for income tax purposes while the return to common stockholders is subject to tax. It is even possible to issue debt without increasing the risk to the owners (the debt is issued to stockholders in proportion to the ownership of stock, or equivalently investors buy a mixture of stocks and bonds on the market). However, it is argued in this paper that if we assume that the present stockholders have no further resources available for investment in the firm, but the enterprise needs additional resources, then the present stockholders have to make a basic decision about whether to issue stock or debt to raise the additional needed capital. The issuance of debt in this situation increases risk, and the issuance of stock dilutes ownership. Even when bondholders require a much lower contractual return than the expected annual return of stockholders, the issuance of more stock may be preferred to the issuance of debt.

This paper will demonstrate that different margin levels are associated with the price behavior differences of certain commodity futures. In 1959, Harry Roberts suggested the methodology of rational subgrouping as a means of testing random versus systematic price changes. His methodological suggestion has had only limited testing in security markets and no direct application to domestic futures markets. This paper uses margin levels as a basis for rational subgrouping of selected commodity futures. Evidence supports the argument that, when a series of price changes is grouped according to margin levels and these levels are analyzed separately, nonrandom characteristics that tend to be offsetting in the aggregate series become evident. The nonrandom behavior observed is consistent with the hypothesis that, in certain periods, margin levels have been set too high to attract a volume of speculative services necessary for the maintenance of market balance.

This study develops and empirically tests a number of methods of analyzing financial ratios to predict small business failure. Although not all of the methods and ratios are predictors of failure, many ratio variables are found which do predict failure of Small Business Administration borrowers and guarantee recipients. Using step-wise multiple discriminant analysis with a restriction on the simple correlation of the entering variable with the included variables, a function of independent ratio variables, which is highly accurate in classifying borrowers in the test sample, is developed. Methods of analysis found useful are (1) classification of a borrower's ratio into quartiles relative to other borrowers in the sample, (2) observation of an up- or down-trend for a three-year period, (3) combinatorial analysis of a ratio's trend and recent level, (A) calculation of the three-year average, and (5) division of a ratio by its respective RMA industry average ratio. The discriminant function demonstrates an ability as great as those functions recently estimated for much larger firms. However, the small business function fails to discriminate when only one statement is available, whereas Altman [1] and Beaver [4, 5] show that one financial statement is sufficient for a highly discriminant function for large businesses. This leads the author to qualify his conclusion above with the provision that at least three consecutive financial statements be available for analysis of a small business.

A number of recent articles have explored the reasons underlying observed differences in deposit variability among commercial banks. The variability of deposits at individual banks is of interest to bank management, the Federal Reserve, and the general public for several reasons:

1. Deposit variability is frequently included as an important determinant of portfolio strategy. The more volatile a bank's deposits are, the more liquid its mix of assets will be.

Studies [1, 3, 4, 5] pertaining to the relationship between a firm's cost of capital and the debt component of its capital structure have been implicitly assuming the equivalent-risk class hypothesis to be true. According to the hypothesis, firms belonging to the same industry group do not exhibit significant differences in regard to business risk and can, therefore, be treated as belonging to an equivalent risk class. The validity of this hypothesis, as borne out by the research of Wippern [8] and, later, of Gonedes [2], has become questionable. The purpose of the present paper is to replicate the test carried out by Gonedes with a set of sampled data from Indian industries. A brief review of the two existing studies is given below.

Installment credit grantors require a method of distinguishing delinquent borrowers from whom an extension will be likely to result in repayment of the loans from those for whom the probability of repayment is too low to warrant further expenditure and against whom additional collection efforts would be unprofitable. A method evolved from the techniques utilized in the Marginal Credit Risk Study in the attempt to distinguish personal bankrupts, who in filing bankruptcy could be presumed to express the intent to not repay, from petitioners filing under Chapter XIII of the Bankruptcy Act and debt counselees who, under both plans, voluntarily enter programs for the repayment of their debts.

The recent studies of Fisher and Lorie [10 and 11], Brigham and Pappas [2], and others have contributed significantly to our knowledge about overall rates of returns on common stocks. There is, in addition, a growing body of empirical evidence investigating the performance of alternative portfolio maintenance strategies [4, 8, 9, and 13]. However, to date, this evidence for rates of return under alternative portfolio strategies has been obtained for a “one-time” investment decision (with allowances for reinvestment of dividends and possible intraportfolio reallocation). In this paper the effects of alternative portfolio accumulation strategies on subsequent portfolio rates of returns are examined.

In this paper, the models utilized in earlier studies were applied to a larger sample with greater size and geographic dispersion. For those functions that account for the largest proportions of direct operating cost and employment, the scale coefficients increased from 1965 to 1968 so that they were not significantly different from unity. For activities requiring more skilled human resources than the “factory” operations of the typical bank, there were significant economies of scale of magnitudes similar to those in the 1965 Northeast sample. A test of overall scale economies assuming proportional expansion of all facilities showed a decrease in scale economies since 1965.

This study has addressed itself to that group most immediately affected in corporate acquisition, the stockholders of acquired companies. We find that in the years observed, acquired company stockholders seem to have benefited from the acquisitions. This study differs from other studies of post-merger performance of the common stock of acquirors and not the performance of securities received by acquirees in exchange for their common stock. It should also be noted that most of the financial gain resulting from the acquisitions accrued at the time of merger because of substantial premiums paid by acquirors. While the stockholders of the acquired companies have, on average, benefited, these results tell us little of the effect of mergers on the welfare of society or, for that matter, of their effect on the stockholders of the acquiring firm. If the merger cannot be justified on the basis of some economy of scale or synergistic advantage, the newcomers reap their lucrative returns only at the expense of the old guard. If the acquiring firm pays a premium in acquisition on the basis of justifiably sound expectations of increased profits, social welfare is not necessarily enhanced. Increased profitability may not reflect increased efficiency; it may, for example, be a manifestation of decay in the competitive environment.

We have seen a recent surge in the interest in some revision of the consumer finance laws, the most comprehensive of which has been the Uniform Consumer Credit Code. In the past, there have been many attempts to determine independently the effect one aspect of consumer finance legislation had on the market for consumer loans. However, the different regulatory provisions are not enacted independently. Thus, it may be more appropriate to investigate jointly the effects of several of the features of the laws.

First, let me say that I enjoyed Professor Edmister's paper and found his Inquiry into ratio analysis and multiple discriminant analysis (MDA) for small business financing decisions quite interesting.

A belief frequently expressed by observers of the stock market is that groups of institutions tend to trade in the same way at the same time. Two expressions of this belief follow:

Frequently reference is made to the ‘impact’ of institutional investors on the stock market. Apparently it is worrisome to the observers of the markets to find that we tend to buy and sell somewhat in unison.

This study deals with the problem of debt — composition of the firm — specifically, the optimal mix of short- and long-term debt, or the optimal maturity composition of the total debt. It can be viewed as a subproblem of the more familiar determination of the optimal mix between total debt and owner's equity (Modigliani and Miller [15 and 16], Durand [3], Schwartz [18], Solomon [20], etc.).

One of the most vexing areas of business finance is empirical validation of theory. Many problems arise that the investigator cannot avoid. The purpose of this paper is to define a class of problems that can be avoided but that have caused many previous investigators difficulty, even though they may not have realized it. In what follows, the concept of dimensional analysis, borrowed from the physical sciences, is introduced. Then dimensional analysis is extended to the interpretation of estimated regression coefficients.

Understanding and predicting various aspects of the financial performance of corporations have been undertaken almost entirely on the basis of assumed one-way statistical relationships which rely on some aspects of internal corporate behavior being exogenous to other aspects of behavior. When financial performance variables involved in such studies are jointly determined as parts of a simultaneous system of financial performance, this approach cannot be expected to produce useful results, because it is well known that obtained statistical results are biased and inconsistent.

In a previous paper we reviewed the literature on normative stock price models. These models specified the present value of a share of common stock to be equal to the discounted value of dividends accruing to the holder. Using continuous discounting, the present value of a share is (1)

where Dt is the dividend rate at time t and k is the cost of equity capital. Presumably k is a function of both the stockholders' time value of money and the perceived risk or uncertainty associated with the future dividend stream.