Capital cost and adjusted present value: Reconciliation and amplification

In recent years the adjusted present value method has been propounded for capital budgeting analysis. A comparison of the standard cost of capital approach to the adjusted present value method indicates that the two analyses produce exactly equivalent present value appraisals, as long as the enterprise contemplating the asset has a policy of keeping the degree of leverage constant. The conclusions reached are independent of the firm's target leverage position matching its present posture.     

Inflation,currency exchange rates,and the international securities markets

A time-state-preference model of an efficient and complete international financial market is employed to investigate the conditions under which the international Fisher Effect will hold, and the forward currency exchange rate will be an unbiased estimate of the future spot rate. The presence of stochastic inflation within countries in the fiat-currency prices of real goods will destroy both relationships, even in the absence of any institutional imperfections or trading barriers. Similarly, expected inflation rate differentials across countries will not coincide with spot-versus-forward currency exchange rate differentials.     

Market efficiency across securities exchanges

Considerable empirical evidence has been presented in the literature of finance in recent years addressed to the question of the informational efficiency of the American capital market. The present paper adds to that evidence. In particular, securities traded off the NYSE—on the American Stock Exchange, on regional exchanges, and over the counter—are found to exhibit return characteristics that imply rather more frequent price departures from equilibrium than for their NYSE-listed counterparts. The data consist of the actual investment experiences of a large sample of individual investors with securities traded in the various locales.     

Mismeasurement of market returns

Virtually all empirical tests of the Capital Asset Pricing Model have assumed (usually implicitly) that returns of some New York Stock Exchange index measure the returns of the “market factor” without error. However, recent theoretical developments suggest that this assumption may be inappropriate. In this effort, an obverse tack is adopted — the asset pricing model is assumed correct and attention is focused on the impacts of incorrect specification of market returns. A simple errors-in-variables econometric technique is used to reevaluate the oft-cited study of Black, Jensen, and Scholes. The conclusion is reached that incorrect measurement of the market is itself an onerous and unreconciled problem which adds marked bias to tests of asset pricing mechanisms.     

The role of incubator organizations in the founding of growth-oriented firms

The role of incubator organizations, those organizations where entrepreneur work before starting their own firms, is examined. Using a sample of 161 new, growth-oriented firms, the relationships of the new companies to their incubator organizations are considered, as well as the characteristics of the incubator organizations. 5The findings have implications for prospective entrepreneurs. Entrepreneurs in most industry categories do not change geographic location and, in most technical industries, usually start businesses related to what they did before. An individual's decision to join a particular organization results in a particular geographic location and in knowledge about a particular industry. The would-be founder located in an unpromising geographic area and getting experience in an industry offering few opportunities for company start-ups is unlikely to be able to start a growth-oriented technical firm, regardless of personal motivation. However, the prospective founder of a nontechnical firm appears to be less tied to the experience gained in an incubator organization.There are also implications for regional economic development. Because technically oriented start-ups are tied closely to the business of their incubator organizations and because most entrepreneurs don't move when starting, the possibilities for high-technology start-ups may be very limited in many geographic regions. There have been no studies, to date, on why some founders move when starting. Programs to attract entrepreneurs at the time of start-up may have promise, but, at least to date, there is not much evidence of entrepreneurs being mobile at this stage of their careers.Local and regional programs to attract branch facilities of larger corportions have a long history. The emphasis is usually upon attracting facilities that will offer the maximum number of blue-collar jobs. In contrast to this traditional approach, it might be beneficial to shift the emphasis to those facilities most likely to function as incubators. The greatest benefits might come from laboratories or divisions that would “seed” a region with people learning about promising technologies or industries.The role of universities in this process appears to be less direct than is often assumed. Based upon our sample, it appears that software and biotechnology/medical firms often have spun-off from universities or hospitals. However, in other industry categories, it is business firms that have primarily served as incubators. There are currently many experiments underway to create university-affiliated innovation centers or incubator centers intended to help aspiring entrepreneurs. Whether these will enable universities to function more effectively as incubators, spinning off students and faculty who start growth-oriented firms, remains to be seen.     

Perceived importance of selected product information sources in two time periods by United States and West German consumers

Perceived use of different types of information sources in the purchase of a major durable good is investigated in two countries (West Germany and the U.S.), two age groups (under 35, 35 and over), and two time periods (1970 and 1976). A logit model is constructed to allow probabilistic conclusions about the relationships among time, country, and age as explanatory variables and information source types as response variables. Product testing is found to increase in importance between time periods in both countries and to have the highest probability of use in combination with peer group as a source. Advertising has twice the probability of perceived use in the U.S. as in West Germany, and probability of use has not changed between years. Age is found not to be significant in perceived importance of sources.     

Operating leverage as a determinant of systematic risk

Since the development of the capital asset pricing model, a number of studies have examined the effect of a firm's operating leverage on its systematic risk. The essential conclusion of these studies is that operating leverage affects systematic risk through either the contribution margin or unit variable costs. In this paper, the models derived in previous research are refined and extended to demonstrate that, for either a single-product or multiproduct firm, the degree of operating leverage measures the full effect of a firm's operating leverage on its systematic risk. In addition, it is shown that a sales variability measure should also be an important differentiating factor among the systematic risk of common stocks. Thus, the results have important practical implications for financial managers when estimating project or divisional risk for investment decisions, and for security analysts when predicting the systematic risk of common stocks.     

Comparisons of factor structures in separate consumer behavior studies

Three methods of comparing factor structures among separate factor analytic studies are examined. Examples are developed for each of the three methods, illustrating typical uses in different research settings. Major characteristics of the methods are compared and summarized. The article is essentially a non-technical and nonexhaustive overview of comparison methods directed to researchers not fully acquainted with the function and utility of these comparatively new techniques. The examples used are developed from a large-scale consumer study, but applications obviously extend to a much broader group of business research situations.     

Information processing analysis of a stochastic model of brand choice

A formal and detailed comparison between Morrison's brand loyal model and its information processing counterpart reveals serious internal inconsistencies and other shortcomings of this stochastic model.     

Three conjoint segmentation approaches to the evaluation of advertising theme creation

Advertising professionals have been challenged for decades by the problem of choosing the most appropriate advertising theme or product claims. Although many studies have been conducted in the areas of message recall and viewer response rates, very little guidance has been provided in this elusive area. Some methodological insights are provided here describing three segmentation procedures, using conjoint analysis in advertising theme creation.     

Two copy testing techniques: The cloze procedure and the cognitive complexity test

The theory behind two copy testing techniques—the cloze procedure and the cognitive complexity text—is reviewed; and three hypotheses are developed for testing. These two techniques work especially well when used together as they provide a way to match message properties with the audience's abilities. In a discriminant analysis setting, support is found for all three hypotheses, and a substantial portion of the variance in the criterion variable—advertising recall—is taken into account. The results of predictions to a validation sample are also encouraging.     

Importance,elicitation order,and expectancy × value

Considerable confusion surrounds the role of importance in multiattribute attitude models. The present study tests a theoretical proposition as to how attribute importance is manifested in the expectancy-value formulation. Though not unequivocal, the results suggest that order of elicitation may be more valid than structured ratings as an indicant of attribute importance.     

Union steward locus of control,job, union involvement,and grievance behavior

Discretionary behaviors of union stewards are described. The use (or otherwise) of these behaviors may be a critical index of the number of grievances filed in an organization. Utilization of proactive grievance filing behaviors is systematically associated with steward job involvement, union involvement, and locus of control orientations. This hypothesis received empirical support in this research. Implications for organizational theorists and practitioners alike are discussed.