Although the effects of pure diversification and synergistic mergers on market valuation have been widely discussed and there have been a number of studies estimating. merger performance using the two-parameter model of Sharpe-Lintner, the investigation of the corporate determinants of beta is of recent vintage. A variation on this theme, namely whether merger activity is impounded into beta and its speed of being impounded, is the focus of the Joehnk-Nielsen (J-N) study.

The FTC reported 22, 517 corporate acquisitions during the 1960s compared with 7200 for the period, 1940–1959. The increased employment of this method of corporate growth has generated a number of studies explaining certain segments of the merger movement. Attempts have been made to explain why firms merge, how firms merge, and how mergers have affected subsequent performance of firms. Mergers have been described as consummated to avoid bankruptcy (for the acquired firm), to capitalize upon managerial inefficiencies, to gain from valuation discrepancies, to achieve portfolio diversification, and for synergistic purposes and many other reasons.

In their present paper. Professors Cheng and Deets (hereafter C-D) attempt to derive a measure of instantaneous systematic risk for securities and portfolios which is consistent with the Sharpe-Lintner-Mossin capital asset pricing model when the true market horizon is infinitesimally short. In so doing, they assert that Jensen's resolution of the horizon problem for such a market horizon is incorrect. In the comments which follow, I shall attempt first to indicate explicitly the causes for the differences in the Jensen and C–D results, and second, to evaluate their relative merits.

William L. Sartoris, The Effect of Regulation, Population Characteristics, and Competition on the Market for Personal Cash Loans, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 4 (Sep., 1972), pp. 1931-1956

J. L. Dake, Comment: An Empirical Test of Financial Ratio Analysis, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 2, Supplement: Outlook for the Securities Industry (Mar., 1972), pp. 1495-1497

Jerry L. Jordan, Comment: The Strange Journey of Monetary Indicators, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 2, Supplement: Outlook for the Securities Industry (Mar., 1972), pp. 1643-1646

James L. Bicksler, Comment: Portfolio Theory and Industry Cost-of-Capital Estimates, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 2, Supplement: Outlook for the Securities Industry (Mar., 1972), pp. 1463-1467

Markowitz [12] and Tobin [19] pioneered in the development of a portfolio selection model resting on the assumptions that the investor1. Chooses among alternative investment opportunities solely on the basis of expected return (E) and standard deviation of return 〈σ〉, and2. Prefers more expected return to less but will refuse to incur additional risk (measured by standard deviation) unless compensated by increased expected return.

This article has described a technique for evaluating intercorporate performance using risk, return, and trend. By regressing risk and trend on return for a large number of companies, an average performance plane has been established. A company's performance is measured by determining its position relative to the plane.

Based upon the ubiquitous nature of cash flow projections in the decision-making process, it would be desirable to be able to find answers to questions of the following form:(1) How does the level of variability in demand affect the cash outflows for payment of accounts payable liabilities?(2) Does the method used in planning production influence the firm's cash flow patterns?Analysis of existing attempts to model the cause and effect relationships within the cash flow process reveals that the ability to answer questions similar to the ones posed above does not exist. The research accomplished to date can be characterized as being definitional and hypothetical; cash flows have been defined, lists of factors that may influence cash flow patterns have been postulated, and simple examples of what may happen to cash flow patterns have been constructed. Although these preliminary steps are necessary, they are not sufficient for a thorough understanding of the cash flow process. Analysis must be undertaken to establish the cash flow consequences of various combinations of environmental and organizational factors.