Assessing individual differences in psychophysical functions

Individual differences in psychophysical data are examined in an olfactory experiment using a group of sixteen children (9 year olds) and three different techniques: magnitude estimation (ME), reglets or sticks (RE) and finger span (FS). From the responses given in the three techniques Steven's functions were calculated. Group and individual fits to the power law are analyzed. Comparisons of all individual curves were also done and consistency of the subjects responses across techniques was examined. Results show that: (1) while group data fit to the power law, individual data, in general, do not; (2) individual differences are found in both slopes and intercepts and (3) subjects are consistent in their judgments across techniques. These results might be interpreted in a sensory and cognitive context. Further research is needed to identify the specific contribution of sensory and cognitive sources to the individual differences in the psychophysical function.     

Financial Flexibility,Investment Ability,and Firm Value: Evidence from Firms with Spare Debt Capacity

We document, for the first time, that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizable. Further, long-run performance tests reveal that financially flexible firms not only invest more but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in capital structure theory.