THE CAPITAL STRUCTURE PUZZLE: ANOTHER LOOK AT THE EVIDENCE

Since the formulation of the M & M irrelevance propositions 40 years ago, financial economists have been debating whether there is such a thing as optimal capital structure—a proportion of debt to equity that maximizes current firm value. Some finance scholars have followed M & M by arguing that both capital structure and dividend policy are largely “irrelevant” in the sense that they have no significant, predictable effects on corporate market values. Another school of thought holds that corporate financing choices reflect an attempt by corporate managers to balance the tax shields and disciplinary benefits of greater debt against the increased probability and costs of financial distress. Yet another theory says that companies do not have capital structure targets, but instead follow a financial pecking order in which retained earnings are preferred to outside financing, and debt is preferred to equity when outside funding is required. In reviewing the evidence that has accumulated since M & M, the authors argue that taxes, bankruptcy (and other “contracting”) costs, and information costs (the main factor in the pecking order theory) all appear to play an important role in corporate financing decisions. While much if not most of the evidence is consistent with the argument that companies set target leverage ratios, there is also considerable support for the pecking order theory's contention that firms are willing to deviate widely from their targets for long periods of time. According to the authors, the key to reconciling the different theories—and thus to solving the capital structure puzzle—lies in achieving a better understanding of the relation between corporate financing stocks (leverage ratios) and flows (specific choices between debt and equity). Even if companies have target leverage ratios, there will be an optimal deviation from those targets—one that will depend on the transactions and information costs associated with adjusting back to the target relative to the costs of deviating from the target. As the authors argue in closing, a complete theory of capital structure must take account of these adjustment costs and how they affect expected deviations from the target.     

An interview with Joyce C. Clifford. Interview by Carmella A. Bocchino

Various professional practice models have been used to advance nursing. The primary nursing model at Boston's Beth Israel Hospital has continued to be successful for over 15 years and has gained the respect of both the nursing community and the hospital industry. Joyce C. Clifford, MSN, RN, FAAN, Vice-President for Nursing and Nurse-in-Chief at Beth Israel, discusses the development and implementation of this practice model and her strategies--continuity and accountability--to advance nursing.     

Sexual Harassments: Criteria for difining hostile enviorment

Sexual harassment in the workplace continues to be one of the most controversial and complex legal and ethical issues facing empolyers. The U.S. Supreme Court's June 1986 decisiion inMeitor Savings Bank v. Vinson, which applied Title VII of the Civil Reights Act to situations involving sexual harassment, is discussed. The Court's definition of hostile environment is reviwed, and federal court cases interpreting the Supreme Court's pronousncements are examined. The cases provide guidance on the kinds of situations that result in employer liability for sexual harassment. A primanry conclusion is that employers may easily avoid liability by exercising learned judgment and sound management practices.     

Trading costs for listed options: The implications for market efficiency

This paper reexamines the anomalous evidence concerning the efficiency of the listed options exchanges. We focus on the structure of trading costs in that market, and note several costs which generally have been ignored, the largest of which is the bid-ask spread. When we adjust the published trading rules for our estimates of these trading costs, the reported abnormal returns are eliminated.     

The effect of experimenter bias in a cola taste test

In a simulated cola taste test, experimenters' nonverbal behaviors influenced subjects' cola choices, although subjects expressed no awareness of the experimenters' impact. Nonverbal intimacy behaviors may make subjects feel comfortable in same-sex pairs and uncomfortable in mixed-sex pairs, resulting in an association of these internal states with cola preferences.     

Assessing hierarchical differences in job-related attitudes and turnover among retail managers

A model of organizational turnover is expended from previously reported models to include an extraorganizational antecedent and comparison across two different hierarchical levels of management. Role ambiguity, role conflict, and work-family conflict were used as antecedents of job satisfaction, organizational commitment, intent to leave, and actual turnover. The basic model of turnover was supported in both levels of management. In addition, several additional relationships that have been found in previous studies were tested. Implications of these results for retail managers are discussed. She received her Ph.D. from Oklahoma Stae University. Her research interests include retail turnover, socialization of entry-level management trainees, the role of social support in reducing employee stress, consumer distribution systems in Russian and Poland, and motivation of Russian and Polish employees. Her articles have appeared inJournal of Retailing, International Marketing Review, andMarketing Education Review. He received his Ph.D. from Ohio State University. His research interests include attitude-behavior relationships, information processing, and the use of structural equations in marketing. His research has appeared in theJournal of Marketing, Journal of Marketing Research, Journal of Experimental Social Psychology, Journal of Advertising, andJournal of Business Research. He received his Ph.D. from University of Utah. He has extensive experinece in computer applications in marketing and business and has conducted research and seminars for a variety of companies. His major interests are in quantitative methods and sales manamgement. His articles have appeared inJournal of Retailing, Journal of Marketing, Journal of Personal Selling and Sales Management, Business Horizons, Journal of Public Policy and Marketing, andJournal of Business Logistics and Business.     

Raiders or saviors? The evidence on six controversial investors

Carl Icahn, Irwin Jacobs, Carl Lindner, David Murdock, Victor Posner, and the late Charles Bluhdorn are usually portrayed as corporate ‘raiders’. The evidence here, however, shows that between 1977 and 1982 when it was first announced that they had purchased stock in a given firm, stock prices on average increased significantly. The investors' activities in target firms for the two years following the initial stock purchase are likewise inconsistent with ‘raiding’. We discuss two hypotheses that are consistent with the evidence: first, these investors improve the management of target firms; second, they are systematically able to identify under-priced stocks.