Managerial decision making, Budget adaptiveness, Budget Tightness

Most textbooks call convertible bonds and convertible preferred stocks hybrid securities because they have the characteristics of senior securities together with many of the attributes of common stocks. In most, if not all, balance sheets they are classified as senior securities and their claim against earnings is reported to be the coupon interest or the dividends declared.' Yet, in most cases the nominal rates of return on these securities are substantially below those of equivalent-risk nonconvertible securities. It is apparent that these nominal rates are an inadequate measure of the real cost of convertible securities to the firm.2 What then is the cost of convertibles? To what extent do published reports understate or overstate their cost? What are the important variables affecting that cost? How does the cost of debt affect earnings per share? This paper presents the results of an empirical study intended to answer those questions. It seems clear that a convertible security, either bond or stock, derives its value from the magnitude of its share of the firm's earnings, present and future. That share however is not limited to the cash payout alone; it also includes a pro-rata, per equivalent common share portion of the current period earnings retained by the firm. To the extent that earnings

Management information processing, Managerial control, Performance, Information processing

Many corporations now provide their shareholders with information during the course of the financial year. Probably one of the most important of these news releases is the interim income statement. This statement may cover only a specific segment of the financial year (e.g., a quarter) or it may include the results of the year to date. However, several issues have to be resolved when income is being measured for periods of time which are shorter than a year-e.g., seasonal variations, inventory valuations and writedowns, the allocation of nonrecurring transactions and income taxes. The above mentioned problems are but a few of those which are encountered in the process of interim income measurement. While these and other issues relevant to interim income measurement have been discussed elsewhere,' no research has been conducted to inquire to what extent, if any, the use of alternative interim income measurement techniques will affect (1) the absolute size of reported results for an interim period, (2) the pattern of interim results for the entire financial year, and (3) interyear comparisons of interim data. This study is addressed to these issues. The approach used here is similar to that used by Davidson and Kohl-

Disclosures, Investor sophistication, Unequal information, Stock valuation

Internal Control, 17th century

Capitalism, Double-entry Bookkeeping, Economic growth, Economic activities

Allocation, Uncertainty, Future cash flow, Estimation

Book review, Fisher model, Capital, Income