Living to 100 and beyond--implications of longer life spans

The challenge of longer life spans will center on the problem of allocating individual, family and social resources most effectively. To create a context for understanding the significance of measuring and forecasting mortality trends, this article addresses concerns about the implications of increasing longevity to very high ages for families, businesses and society as a whole.     

Some policy implications of bank participation in small business administration lending programs

This study examines the relationship of bank participation in SBA guaranteed lending programs to bank characteristics and market demographic characteristics. Band SBA lending is related to per capita income in the bank's market area, membership in a bank holding company, the loan-deposit ratio of the bank, the percent business loans of the bank, and the total assets of the bank. In markets of 50,000 or less, greater SBA lending is associated with lower per capita income levels. Accordingly, it appears that the economic development function of bank SBA lending is linked to a greater extent with market areas of less than 50,000.     

Stock or cash? The trade-offs for buyers and sellers in mergers and acquisitions

In 1988, less than 2% of large deals were paid for entirely in stock; by 1998, that number had risen to 50%. The shift has profound ramifications for shareholders of both the acquiring and acquired companies. In this article, the authors provide a framework and two simple tools to guide boards of both companies through the issues they need to consider when making decisions about how to pay for--and whether to accept--a deal. First an acquirer has to decide whether to finance the deal using stock or pay cash. Second, if the acquirer decides to issue stock, it then must decide whether to offer a fixed value of shares or a fixed number of them. Offering cash places all the potential risks and rewards with the acquirer--and sends a strong signal to the markets that it has confidence in the value not only of the deal but in its own stock. By issuing shares, however, an acquirer in essence offers to share the newly merged company with the stockholders of the acquired company--a signal the market often interprets as a lack of confidence in the value of the acquirer's stock. Offering a fixed number of shares reinforces that impression because it requires the selling stockholders to share the risk that the value of the acquirer's stock will decline before the deal goes through. Offering a fixed value of shares sends a more confident signal to the markets, as the acquirer assumes all of that risk. The choice between cash and stock should never be made without full and careful consideration of the potential consequences. The all-too-frequent disappointing returns from stock transactions underscore how important the method of payment truly is.     

The United States as a Coastal Nation

US economic activity is overwhelmingly concentrated at its ocean and Great Lakes coasts, reflecting a large contribution from coastal proximity to productivity and quality of life. Extensively controlling for correlated natural attributes and initial conditions decisively rejects that the coastal concentration of economic activity is spurious or just derives from historical forces long since dissipated. Measuring proximity based on coastal attributes that contribute to either productivity or quality of life, but not to both, suggests that the coastal concentration derives primarily from a productivity effect but also, increasingly, from a quality of life effect.     

The staying power of the public corporation

Has the publicly held corporation out-lived its usefulness? In HBR's September-October 1989 issue, Michael C. Jensen of the Harvard Business School said "yes." The institutional shortcomings of the public corporation are so grave, he argued, that it must be considered fatally flawed. He described the emergence of a new form of enterprise-the LBO Association-that releases much of the untapped value and corrects many of the inefficiencies of large public companies. Alfred Rappaport, a professor and consultant who advises large public companies, joins the debate with a rebuttal to Jensen. Rappaport shares many of Jensen's criticisms of current strategic and financial practices among public companies. But he does not believe leveraged buyouts and other going-private transactions can replace the public corporation. This is so, he asserts, for two reasons: LBOs have a limited demand and a limited life. Rappaport argues that the publicly held corporation is worth saving. It is inherently flexible and self-renewing-properties that are fundamental to stability and progress in a market-driven economy and that transitory organizations like LBOs cannot replicate. Rappaport advances a four-point program to overhaul strategic planning, compensation, and governance to maximize shareholder value in public companies: 1. Find the highest valued use for all assets. 2. Limit investment to opportunities with credible potential to create value. 3. Return cash to shareholders when such value-creating investments are not available. 4. Establish incentives for managers and employees to focus on the critical business drivers that create value.     

Value‐Added Per Share (VAPS): A Value‐Relevant Corporate Performance Metric

The authors introduce Value Added Per Share (VAPS) as a value‐relevant metric that is intended to complement earnings per share (EPS) in helping corporate managers and analysts understand and overcome the limitations of GAAP‐based reporting. VAPS discounts a firm's past and projected cash flows at its “cost of capital,” allowing companies to avoid the subjective accounting accrual process and other practices that often make EPS misleading. A company's VAPS is calculated in three main steps: (1) estimate the change in the capitalized value of after‐tax operating cash flow by taking the net change (plus or minus) of the firm's operating cash flow after taxes and dividing that number by the firm's cost of capital; (2) subtract total investment expenditures; and (3) divide by the number of shares outstanding. By capitalizing the change in after‐tax operating cash flow, one finds the net change in a firm's current operations value. By subtracting investment expenditures from that change in current operations value, the analyst gets a clearer picture of the benefit to shareholders net of the funds used to create that benefit. Consistent with basic theory, VAPS is positive when a company earns a return at least equal to its cost of capital and negative otherwise. Because of their fundamental differences, EPS and VAPS are likely to send different signals, and VAPS is expected to provide greater insight into stock price changes. The authors provide the findings of statistical tests showing the superior explanatory power of VAPS and recommend that companies publish statements of VAPS along with standard GAAP results, especially since the former can be readily calculated using the available income statement, balance sheet, and cash flow statement data.