Knowledge that Transforms

We are indebted to Elisabeth Allison, G. L. Bach, William Becker, Frank Bonello, Kenneth Boulding, Stephen Buckles, J R. Clark, George Dawson, Daniel Fusfeld, Malcolm Getz, W Lee Hansen, RobertHeilbroner, RobertHighsmith, CliffHuang, ThomasJohnson, Allen Kelley, Darrell Lewis, Michael MacDowell, Campbell McConnell, Richard McKenzie, David Morawetz, Donald Paden, Phillip Saunders, Alex Scott, Howard Tuckman, John Vahaly, Henry Villard, Burton Weisbrod, Arthur Welsh, and Thomas Zak for comments on an earlier draft; to Thomas Overstreet and James Lewek for research assistance; to the members of Economics 380, Kaye James, Noel Lim, Katherine Maddox, Hal McClure, Mary Ann Meiners, and George Nomikos, for papers and discussions on economics education; to Violet Sikes for typing; and to Marjorie Churchill for editorial assistance.

The publication of Lester G. Telser's 1964 paper [52] was the starting point for much of the recent literature on advertising and competition. The major finding of that paper was that there is little empirical support for an inverse association between advertising and competition, despite some plausible theorizing to the contrary This review does not deal with the question of whether advertising is excessive, nor with the related issues of the welfare economics of advertising or product differentiation. Rather, it focuses on those papers which examine the impact of advertising on barriers to entry and on the extent of price competition. Advertising expenditures are designed to influence consumer demand for the firm's products. They may affect both direct and cross-elasticities of demand. Those who argue that advertising may limit competition maintain that the relevant demand curves[1] are more inelastic and that cross-elasticities are lower as a result, while those who dispute this contention suggest that advertising has no such influence or even that it leads to more elastic demands and higher cross-elasticities. Much controversy has therefore turned on the direction of the effects of advertising on demand elasticities. [Авторский текст]

Iam grateful to Alice Amsden, Martin Bronfenbrenner, Christopher Clague, David Felix, Joseph Reid, Kazuo Sato, and referees of this Journal for insightful comments on an earlier draft of this paper. I also thank the Faculty Research Program of the Columbia Business Schoolfor financial support, andjohn Millarfor able research assistance. I bear sole responsibility for any deficiencies in the paper.

Note: ME = Median, M = Mean, S.D. = Standard Deviation of the distributions of the estimated parameters, respectively. The parentheses contain the corresponding statistics for the distributions of the t-values, JEP S = as; ?lEP X/X = ax */logsoe = elasticity of EP with respect to X at X, where X = any explanatory variable in equation (I) other than size (S); X = mean value of X; e = 2.718. a Details of the regression results may be obtained from the author upon request.

In the 1960s and early 1970s many conglomerate companies were treated as the glamour shares of the stock market and they traded at high price-earnings ratios. One reason for this glamour status was the belief that these conglomerates had dynamic, entrepreneurial management and when this was injected into taken-over firms greatly increased efficiency and profits would ensue, which would ultimately be reflected in a superior share price performance. The current note examines this hypothesis by presenting the results of a research study into the actual stock market performance of conglomerate firms in the United Kingdom. Following Professors Weston, Smith and Shrieves (this REVIEW, 1972) the study uses a capital asset pricing model approach in measuring performance . Contrary to Weston et al. 's findings the current study found that conglomerates did not display superior risk-adjusted stock market performance. The findings are consistent, however, with other studies in the United States (Melicher and Rush, 1973; Brenner and Downes, 1979), as well as with previous studies into takeovers in Britain (Firth, 1976 and 1979) which showed no stock market gains resulting from making acquisitions.

Beckmann, Martin J., and Ryuzo Sato, Aggregate Functions and Types of Technical Progress: A Statistical Analysis, American Economic Review 59 (Mar. 1969), 88-101. Brubaker, Earl R., Multi-Neutral Technical Progress: Compatibilities, Conditions, and Consistency with Some Evidence, American Economic Review 62 (Dec. 1972), 997-1003. David, Paul A., and Thomas Van de Klundert, Non-Neutral Efficiency Growth and Substitution between Capital and Labor in the U.S. Economy, 1899-1960, American Economic Review 55 (June 1965), 357-394. Hicks, John R., Theory of Wages (London: Macmillan and Co., Ltd., 1932), chapter VI. Kendrick, John W., Productivity Trends in the United States (Princeton: Princeton University Press, 1961). Sato, Ryuzo, The Estimation of Biased Technical Progress and the Function, International Economic Review 11 (June 1970), 179-208. The Most General Class of CES Functions, Econometrica 43 (Sept.-Nov. 1975), 999-1003. Sato, Ryuzo, and Martin Beckmann, Neutral Inventions and Functions, Review of Economic Studies 35 (Jan. 1968), 57-66. Sato, Ryuzo, and R. F. Hoffman, Production Functions with Variable Elasticity of Substitution: Some Analysis and Testing, this REVIEW 50 (Nov. 1968), 453460. Takayama, Akira, On Biased Technological Progress, American Economic Review 64 (Sept. 1974), 631-639.

In recent years the model of capital asset valuation (CAPM) proposed by Sharpe (1964), Lintner (1965), and Mossin (1966) has become the predominant representation of capital markets for empirical work and in the development of normative financial theory. In light of the model's popularity, the contradictory empirical evidence contained in studies of capital market behavior is disturbing. Researchers report findings of deviations of estimated parameters from theoretical values (Black et al., 1972; Fama and MacBeth, 1973; Miller and Scholes, 1972), non-linear rather than linear riskreturn relationships (Fama and MacBeth, 1973; Jensen, 1972), and indications of the incompleteness of the model's measure of risk (Fama and MacBeth, 1973; Rao and Miller, 1968). Further, the observed results have not been attributed to the econometric problems known to exist (Miller and Scholes, 1972). In this paper we argue that the conventional approach to testing the CAPM is subject to a peculiar in variables problem and cannot be expected to be successful even if the underlying model is valid. The CAPM is an equilibrium condition with equilibrium asset prices implicitly deflating the risk and the return measures denominated in rates of return. If disequilibrium observations are employed, then erroneous prices deflate both regressor and regressand in the regression model of the CAPM. As Casson (1973) has shown, estimated model parameters will not be consistent. The effect of this problem is difficult to relate to previous empirical evidence. The ,B estimates employed in these studies were produced by -a method that exhibits an equivalent errors in deflating variable problem. Our findings, however, indicate that reported results cannot be considered inconsistent with the validity of the hypothesized relationship. Finally, we show that the CAPM regression model can be recast in terms of asset prices rather than rates of return in order to produce consistent estimates of the parameters of interest.

Menachem Brenner, David H. Downes, A Critical Evaluation of the Measurement of Conglomerate Performance using the Capital Asset Pricing Model, The Review of Economics and Statistics, Vol. 61, No. 2 (May, 1979), pp. 292-296