There exists a relatively large body of evidence that is consistent with the proposition that the market for securities (in particular, the New York Stock Exchange) is an efficient market in the sense that market prices react instantaneously and unbiasedly to new information and, therefore, market prices fully reflect all publicly available information. To what extent do accounting numbers reflect the kinds of information reflected in market prices? One might not, of course, expect accounting numbers to reflect all events reflected in current market prices. For example, if an economically significant piece of legislation is under discussion in, say, the United States Senate, then the expected effects (if any) of this legislation may be impounded in current market prices. One should not, however, expect these effects (if any) to be reflected in currently issued accounting numbers because of the nature of accepted accounting procedures. Yet, in general, over a period of time, there may be a systematic correspondence between some types of events reflected in market prices and accounting numbers. That is, over time, there may be a correlation between the information impounded in market prices and that impounded in accounting numbers.

Ronald J. Jordan, An Empirical Investigation of the Adjustment of Stock Prices to New Quarterly Earnings Information, The Journal of Financial and Quantitative Analysis, Vol. 8, No. 4 (Sep., 1973), pp. 609-620

A recent study by Larner [11] concluded that the managerial revolution analyzed earlier by Berle and Means [4] was close to completion because a large percentage of the nation's 200 largest nonfinancial corporations was controlled by nonowner managers. This finding makes more significant any substantial differences in financial performance that may exist between owner-controlled and manager-controlled firms, and it increases the potential impact of numerous related theories; for example, see Berle [3], Donaldson [5], Gordon [6, 7 ], Mason [14], Monsen and Downs [16], Williamson [21], and others.

J. Walter Elliott, Forecasting and Analysis of Corporate Financial Performance with an Econometric Model of the Firm, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 2, Supplement: Outlook for the Securities Industry (Mar., 1972), pp. 1499-1526

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

A proposition is proved which shows that each member of an important class of investment and financing projects has a unique nonnegative internal rate of return. Nonuniqueness of the internal rate of return is thus shown to occur less frequently than formerly believed. The correspondence between the proposition and previous results on the uniqueness of the internal rate of return is briefly indicated.

Robert J. Saunders, On the Interpretation of Models Explaining Cross Sectional Differences Among Commercial Banks, The Journal of Financial and Quantitative Analysis, Vol. 4, No. 1 (Mar., 1969), pp. 25-35

Many students of business finance subsume the risks associated with a firm's income stream under two general cognomens, namely, “business risk” and “financial risk.”1 The degree of business risk associated with a firm's income stream is considered to be a function of all determinants of risk except those that relate to the means by which a firm's operations are financed (i.e., the nature of a firm's capital structure). In general, business risk is determined by a firm's asset structure, the purposes for which a firm's assets are used, and the efficiency and effectiveness with which a firm's assets are utilized. The determinants of business risk include the competitive position of a firm, the nature of a firm's operating expenses, the intensity of demand for a firm's products, and a firm's managerial resources, inter alia. A measurement of the variability of net operating income (i.e., earnings before interest expenses and income taxes) is usually employed as a surrogate of business risk.

Material adverse change (MAC) clauses are a ubiquitous feature of acquisitions and exhibit substantial cross-sectional variation in the number and types of events that are excluded from being material adverse events (MAEs). MAEs are the underlying cause of 69% ofacquisition terminations and 80% of renegotiations. These renegotiations lead to substantial changes in the price offered to target shareholders. Acquisitions with fewer MAE exclusions are characterized by wider arbitrage spreads during the acquisition period and are associated with higher offer premiums. We conclude that MAC clauses have an economically important impact on the dynamics of corporate acquisitions.

Many financial institutions employ outside portfolio managers to manage part or all of their investable assets. It is well recognized that outside portfolio managers are unwilling to share security information with each other or with the centralized decision maker and this in general will lead to sub-optimal portfolios. In this paper, we derive an implementable set of rules under which a central decision maker can make optimal decisions without requiring decentralized decision makers to reveal estimates of security returns. Furthermore, we derive conditions under which these rules hold and when they do not hold.