We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead–manage their own bond offerings the underpricing is significantly less as compared with other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering process is characterized by substantive agency conflicts between shareholders of corporations (issuers) and underwriters.

The author argues, in this paper, that there are at least three reasons why a simultaneous equation bias may exist and be significant in single equation estimates of executive compensation when one of the independent variables is a measure of firm performance. First, there is simultaneity between the determination of the MRP of the executive input and profit maximizing output in the classical microeconomic sense. Second, where firm performance is used as a measure of executive quality, then a simultaneous bias may develop. Third, the presence of expense preference behavior could result in simultaneous but inverse effects on executive compensation and firm performance.

Several studies have investigated the reaction of the stock market to a firm's changing its method of accounting for external reporting purposes. By contrast, this study investigates the reaction of proper subsets of the stock market to changes in accounting methods–specifically, the reaction of the set of investors in the common stock of the firm which has changed its accounting measurement rules.

Current conditions in the money and credit markets, along with the memory of the “crunch” of late 1966, have caused both the managers of financial institutions and their regulators to reconsider their concepts of “liquidity.” Both Minsky and Ritter have argued forcefully that traditional attention paid to balance sheet proportions should be abandoned in favor of an intertemporal analysis of cash flows [6], [7], and [8]. Ritter states that: “With a multidimensional cash flow forecast extending several years into the future, probability estimates can be made regarding potential liquidity needs over time” [8]. The purpose of this paper is to suggest a forecasting method which explicitly deals with the problem of uncertainty. The method is specifically designed for a mutual savings bank, but it could easily be adapted for a savings and loan association and, with perhaps greater effort, a commercial bank.2 In Section I, components of cash inflows and outflows are examined with the general objective of classification according to: (1) degree of uncertainty and (2) degree of management control. A risk analysis simulation model which permits explicit consideration of uncertainty is presented in Section II. Problems of implementing the model are discussed in Section III, while the implications of the analysis for future research are considered in Section IV.

Choice under uncertainty may be viewed as choice between alternative probability distributions of returns. Under Von Neumann and Morgenstern's assumptions, an individual's optimal choice is a distribution that maximizes the expected utility of returns. In the theoretical analysis, the distribution functions are assumed to be known However, in most realistic cases, the distributions of returns are unknown and are estimated using available economic data. The traditional mode of analysis is to neglect the estimation risk and use the estimated distribution (in lieu of the true distribution) in determining the optimal choice under uncertainty. In this paper, we consider the portfolio choice problem and determine the effect of estimation risk on an individual's optimal choice under uncertainty.

This paper develops a hypothesis regarding the factors which influence the average maturity of corporate debt, and the hypothesis is tested with a cross-sectional sample of large industrial firms. The sample consists of 159 companies from the Fortune 500 list of the largest industrial firms as of 1971. A linear regression model is developed with the firm's average debt maturity expressed as a function of the firm's asset maturity, size, variability of income, growth, and the proportion of debt in the firm's capital structure.

The hypothesis that corporate directors determine dividend payments by applying target payout ratios and related parameters to current and past earnings has gained widespread acceptance in recent years as a generally applicable account of dividend policy. One reason for the acceptance of this view appears to be its success in predicting the behavior of aggregate measures of dividends in time series regression analyses. The interpretation of these findings as supporting the target payout hypothesis may well be incorrect since the behavior of aggregate magnitudes need bear no direct and close relationship to the behavior of individual firms. This paper attacks the target payout hypothesis on two grounds: it shows that the behavioral characteristics of the firm assumed by the hypothesis have no satisfactory basis in managerial motivation; and it presents data relating to the dividend policies of individual firms for which the hypothesis fails to account.

This paper tests the Value Additivity Principle (VAP) of financial assets with the pricing of Standard Oil securities in 1912. The results are somewhat mixed: the VAP does not generally describe the daily prices of equivalent Standard Oil portfolios, but it accurately describes their average market values; and the portfolio values display convergent adjustment behavior that tends to equalize them quite rapidly. On balance, these findings are consistent with the VAP.

Despite apparent implications of normative portfolio theory for portfolios that incorporate a wide variety of marketable security forms, most of the literature concerned with application or empirical testing of the theory has considered portfolios composed only of common stocks, cash, and the proverbial riskless bond. However, nonequity securities constitute a significant component of investors' total financial wealth, and broadly diversified securities portfolios are commonplace. The objectives of this paper are to examine the risk characteristics of 19 classes of long-term marketable securities, ranging from U.S. government bonds to speculative common stocks, and to explore some implications of these characteristics for diversification of actual securities portfolios. The first section presents some risk measures for these security classes which are derived from ex post holding period return data for the 18 years, 1951–1968. This section includes an appraisal of the efficacy of alternative approaches to the generation of the matrix of interrelationships among the returns of broad types of securities. The second section utilizes the ex post risk measures to explore the composition of minimum risk portfolios consisting of two types of marketable securities, and the final section considers the question of appropriate media for the efficient diversification of common stock portfolios.

For as long as governments have intervened in economic affairs, private decision makers have searched for signs and indicators of ongoing or impending government actions. A century ago, anxious British bankers relied on changes in the bank rate to provide them with information on the intent of the Bank of England. Contemporary decision makers not only analyze changes in policy-tools monetary, fiscal, or debt policy actions—but they carefully scrutinize the words of ever more talkative economic policy makers. The State Department's legendary crew of “China watchers” could not analyze pronouncements by Chairman Mao any more carefully than money market bankers and security dealers analyze an economic report of the President or a speech by the Chairman of the Board of Governors of the Federal Reserve.

The theory of portfolio selection and diversification developed by Markowitz [22] and Tobin [33] was based primarily on the criterion of meanvariance (MV) efficiency. The objective was to select an efficient set of portfolios from which every risk averter will choose the optimal portfolio which maximizes his expected utility. The MV criterion is the appropriate rule either for the case in which the utility function is quadratic or if the returns are normally distributed and risk aversion is assumed.

The facts of increased institutional trading on the nation's securities markets are by now well known. On the New York Stock Exchange (NYSE), the six major institutional groups—insurance companies, investment companies, noninsured pension funds, nonprofit institutions, common trusts, and mutual savings banks, now own more than one-fourth of the market value of listed shares compared with less than 16 percent at the end of 1956. But, ownership is merely the tip of the perennial iceberg, since institutional trading of stock has become much more significant than institutional ownership. This fact is pointed up in the recent SEC Study of Institutional Investors. It shows that there has been a relatively slow increase in the share of outstanding stock owned by institutions in all markets, but the institutional share of trading has mushroomed.

Investment literature, particularly materials made available to investors by financial magazines, brokerage houses, and investment services, places a great deal of stress upon analysis of investment opportunities by industry groups. Examples are industry analyses, such as those of Forbes and Financial Analysts Journal, as well as the industry segregations of popular services such as Value Line, Standard & Poor's and Moody's.

Much of the literature on the adequacy of bank capital is concerned with the role of such factors as default risk and faulty management. These factors are important but they neglect the role that purely stochastic elements can play in affecting the capital of a well-managed bank, even if it is free of default risk. Because banks raise funds by issuing liabilities with different maturities than the assets they acquire, changes in the interest rates paid on these liabilities relative to the interest rates on assets will affect earnings and, hence, bank capital.

In my article, I have discussed the relationship between the internal rate of return, K, and Kp which denotes the reciprocal of the payoff period under several alternative assumptions.