David Downes, Stock Repurchase by Tender Offer: An Analysis of the Causes of Common Stock Price Changes: Discussion, The Journal of Finance, Vol. 35, No. 2, Papers and Proceedings Thirty-Eighth Annual Meeting American Finance Association, Atlanta, Georgia, December 28-30, 1979 (May, 1980), pp. 319-321

David H. Downes, Session Topic: Finance and Accounting: Discussion, The Journal of Finance, Vol. 31, No. 2, Papers and Proceedings of the Thirty-Fourth Annual Meeting of the American Finance Association Dallas, Texas December 28-30, 1975 (May, 1976), pp. 674-677

Abstract The article discusses efficient market empirical research literature in relation to accounting information. The studies discussed in the article questioned the frictionless nature of the hypothesis as usually expressed. The authors believe that efficient-markets research in relation to financial accounting is the most important thrust made by accounting researchers in the past decade. By its very nature, empirical research is time consuming and messy. Furthermore, conclusions are always subject to reservations.

ABSTRACT This paper is an empirical examination of the relation between firm value and two potential actions by entrepreneurs attempting to signal to investors information about otherwise unobservable firm features. The signals investigated are the proportion of equity ownership retained by entrepreneurs and the dividend policy of the firm; both signals are hypothesized to be positively related to firm value. Using a sample of unseasoned new equity issues, the empirical results are consistent with the entrepreneurial ownership retention hypothesis, but the dividend signaling hypothesis is rejected.

This book is a sequel to An Introduction to Risk and Return from Common Stocks (The MIT Press, 1969), although it is fully self-contained and can be read independently. Both books describe in non-technical language the behavior of common stock prices as revealed by formal statistical work. In the process they offer a broad survey of recent quantitative academic research on the subject, much of which is currently in an inaccessible form.The earlier book, which the New York Times says rates high as reading for every professional investor, was concerned with the basic factors affecting risk and return from common stocks. The present work is concerned primarily with unusual factors that may influence the value of an investment. It is divided into three parts: the first considers various company decisions that may affect the price of its stock (decisions on capital structure, dividend policy, and acquisitions); the second looks at particular types of activity in the stock (insider trading, short selling, and secondary distributions); while the third considers securities that are convertible to common stock.Richard Brealey continues to cover new ground. Little of the material in this book can be found in existing investments texts, and like his first book, it should provide an invaluable source of information for the professional investor and may well be received in the same spirit.

In a previous paper we reviewed the literature on normative stock price models. These models specified the present value of a share of common stock to be equal to the discounted value of dividends accruing to the holder. Using continuous discounting, the present value of a share is (1) where Dt is the dividend rate at time t and k is the cost of equity capital. Presumably k is a function of both the stockholders' time value of money and the perceived risk or uncertainty associated with the future dividend stream.

Intelligent corporate financial planning has been necessary for as long as the corporate form of business enterprise has existed. Only in recent years, however, have computer technology and academic theorizing been harnessed to meet this practical need. Without wishing to minimize the impact and value of these efforts on the practice of corporate finance, we do think there are grounds for believing that the new finance “tools” have been less than maximally effective. In this article we contrast typical financial modeling theory in order to interpret the gap between the two. Then we describe a financial policy model whose characteristics might be expected to be more acceptable in practice. Finally, we discuss the implications of the theory/practice gap and our experience with this model for future scholarly activities in the modeling of financial policies.

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