As an alteration of the firm's productive asset portfolio, divestiture is the mirror-image of asset acquisition or merger. Yet, though significant efforts have been expended by researchers into the implications of acquisition and merger, the literature of finance is all but silent on the subject of divestiture.

In Gonedes [5], the results of an empirical analysis of accounting-based and market-based estimates of systematic risk were presented. These results suggested that there is, in general, a “statistically significant” relationship between accounting-based and market-based estimates of systematic risk at the level of individual securities, if the accounting-based estimates are conditional upon first-differences or scaled first-differences of the accounting numbers. The differencing transformation seemed to induce relatively better specified models for the accounting numbers.

The growing sensitivity of savings deposits to flow in response to changes in interest rate differentials has become so commonplace in the past decade that the term “disintermediation” has become a part of the economists' vocabulary. It is a major conclusion of this paper that the volatility of savings deposits began to increase as early as 1950 for savings and loan associations and credit unions and as early as 1945 for mutual savings banks. As an indication of this, we proxy changes in the competitive environment for savings deposits by making yearly estimates of the elasticity of savings deposits with respect to deposit rates at savings and loan associations, mutual savings banks, and credit unions.

A financial decision model of the firm, in which most prior deterministic decision models' assumptions were relaxed, was developed and solved for its policy and state variables' time-optimal trajectories. In particular, the three alternative modes of corporate financing, with their respective explicit and implicit costs, were treated as distinct, time-variant decision variables. In addition, their dynamic interdependent relationship with the firm's investment-possibilities schedule was clearly delineated. Besides eliminating the usual constant returns assumption, our model further introduced a dividends discount factor which was an explicit function of the firm's debt-equity ratio.Furthermore, despite the generality of the model solutions, valuable economic implications were determined; namely, (1) conditions for the existence of a steady-state equilibrium were established with the critical role of nonproportional external equity flotation costs being observed; (2) the firm's dynamic equilibrium path was locally unstable in the initial, high-growth phase of its life cycle and was locally stable in its declining-growth stage–a result consistent with the growth literature in security valu ation theory; and (3) the usual assumptions of the balanced-growth path models are sufficient for the optimality of their decision policies.

The content of the basic course in finance is analyzed in terms of a number of dimensions. My presentation will focus on six areas: (1) our clients and their needs, (2) the managerial orientation, (3) coverage, (4) role of specialized techniques, (5) application to other purposive organizations, and (6) social responsibility issues.

Early studies on the effect of holding company affiliation on bank performance yield some curious results (see [9], [11], [12]). Specifically, these studies did not find that holding company affiliation results in changes in capital-asset ratios or bank profitability.

New stock financing is assuming increasing significance as a source of funds for private firms. The problem of management of external financing has grown as well. As a practical matter, financial managers must depend on the assistance of underwriters with respect to pricing and distribution of new corporate stock. But recent changes, some set in the context of the capital asset pricing model, imply systematic underpricing of new securities. If these charges are true, the financial manager is faced with the dilemma of paying monopsony profits, or accepting the cost and risk involved in taking the issue to market without the investment banker, or seeking an alternative source of funds. In any event, the process of marketing new equity depends on the relationship among the many characteristics unique to the firm and that firm's cost of equity capital. This paper discussed these interrelated issues.

Models developed to explain variations in cash balances of firms have generally postulated forms of rational choice for the decision maker. Two examples of these kinds of models are (1) Baumol's inventory-type model where the choice of the initial balance is made in terms of a planning period in which outflows of cash, but no inflows, are considered; (2) Miller and Orr's model wherein inflows and outflows occur randomly and a decision is triggered to increase or reduce cash balances when an upper or lower threshold is passed. Statistical tests of the inventory-type model have had limited success, particularly in attempts to identify the increasing efficiency in the use of cash balances as a function of the size of the firm. The apparent linear double logarithmic relationship between cash balances of firms and their sales volumes has cast doubt upon the increased efficiency proposition that derives from the Baumol model. Meltzer has modified this model to demonstrate that it implies linearity. The Meltzer tests will be challenged in this paper, and we shall establish that his results, as well as Baumol's conclusions, are particular outcomes that can be better explained in another type of model.

During the last 15 years, the Eurodollar deposit market has grown from perhaps $1 billion to a level now estimated to exceed $200 billion. This growth has prompted numerous arguments and investigations as to its cause [cf. 14, 22, 27], factors influencing it [cf. 24, 28, 29, 32], its import for U.S. banking and monetary policy [cf. 2, 38], its role in international financial market integration [cf. 1, 9, 39], and its impact on the internationalization of U.S. monetary policy [cf. 18, 23]. Over this same period of time, an increasing empirical interest has developed in the term structure of interest rates. Yet most empirical studies of the Eurodollar market [cf. 2, 28, 29, 32] have employed the 90-day Eurodollar CD rate as though it were “the rate of interest” in this market. This tendency has resulted more from the empirical ease of computing covered interest differentials in conjunction with the three–month forward exchange rate than from theoretical considerations [cf. 32, p. 7].

M. J. Brennan, The Optimal Number of Securities in a Risky Asset Portfolio When There are Fixed Costs of Transacting: Theory and Some Empirical Results, The Journal of Financial and Quantitative Analysis, Vol. 10, No. 3 (Sep., 1975), pp. 483-496