Journal Article Some Implications of the Permanent-Income Hypothesis Get access Roger J. Bowden Roger J. Bowden University of Auckland Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 40, Issue 1, January 1973, Pages 33–37, https://doi.org/10.2307/2296737 Published: 01 January 1973

One of the major problems in finance is that of combining the separate costs of debt and equity into an appropriate cutoff rate for new investment; this problem is particularly acute when the firm is changing its capital structure. Solutions to this problem which have been proposed include various types of both marginal costing and average costing.

In their paper Messrs. Reilly and Slaughter set out two questions, namely:1. Prior to the introduction of technological advance in the securities market was there any difference in the market making between the NYSE and OTC on a sample of 30 stocks?2. Following that introduction what was the effect on the market making of these securities listed on the NYSE?The authors clearly stated the basic economic theory that underlies this exchange of assets and the price setting mechanism, and then concentrated on the empirical study. Their findings are inconsistent with their a priori expectations. This empirical study is well done; the methodology is sound and well presented. However, the authors appear to have overlooked one vital aspect of this type of study, i.e., institutional effects. I shall concentrate upon this area.

The annual report is a communication instrument which may be used to differentiate among the various organizations in the business community. Both the results of economic activity (content), and the manner in which those results are presented (form),' constitute the message of the annual report (Li [1]). Owing to the potential impact of the annual report on decision makers, the Securities and Exchange Commission and the American Institute of Certified Public Accountants,2 through their institutional pronouncements, act to develop user confidence in the information contained in the annual report. These pronouncements have in large measure been addressed to monitoring content, leaving the presentation format of the annual report a discretionary variable.' Any attempts to influence annual report user (stockholders, security

Edward J. Lusk, [Discussion of Cognitive Aspects of Annual Reports: Field Independence/ Dependence]: A Reply, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 215-224

In this paper we report some additional evidence regarding the effects of alternative inventory accounting techniques on the decisions of laboratory subjects. Briefly, we have attempted to incorporate various factors within the experimental design which may aid us in interpreting the findings from such laboratory experiments on the effects of alternative accounting techniques. At the outset, we wish to clarify our views about the entire issue of how accounting procedures may affect resource allocation decisions. First, there is an impressive body of evidence supporting the efficient market hypothesis in the assessment of the impact of new information on the prices of securities in capital markets.1 At the aggregate level, there is little reason to believe that the market is fooled by different accounting methods.2 However, the available evidence on the efficient market implies nothing about the ability of individual decision-makers, such as managers and credit officers, to adjust accounting reports across different valuation techniques. Individual decision-makers are our only concern. Granting this orientation, there is still some doubt about the implications of the findings of experimental studies like ours concerning the whole issue of alternative accounting techniques. As an example, suppose subjects-especially students-favor as an investment a firm which reports

1. The modified Linder Theorem, 630. — 2. The role of the income effect, 631. —3. Concluding comment, 632.

And time yet for a hundred indecisions, For a hundred visions and revisions Before the taking of a toast and tea. — T.S.Eliot

The current assets and current liabilities of a firm are the stock reflections of closely interrelated operational and financial cash flows. The net effect of these combined flows must be recognized in searching for the optimal credit, inventory, or short-term borrowing policies. Yet, the vast majority of models for short-term investment and borrowing decisions do not allow for the interrelationships of this system.

N. J. Ireland, G. Briscoe, D. J. Smyth, Specification Bias and Short-Run Returns to Labour: Some Evidence for the United Kingdom, The Review of Economics and Statistics, Vol. 55, No. 1 (Feb., 1973), pp. 23-27