This article presents information on growth of corporations. The article is also a response from the author A.J. Curley to the comments made by author U.E. Reinhardt on conglomerate growth. His argument is not convincing, a position the author Curley will support subsequently. But he presents his case forcefully and with occasional sleight of hand and his paper is very persuasive on a casual reading. There is a problem in defining any growth measure and the solution the author reaches adopts accounts for disagreement. The difficulty arises because firms seldom acquire other firms on dates corresponding to the interval selected for reporting purposes. Focusing on real growth diverts attention from transitory growth, a more likely cause of inflated expectations. Under the current reporting scheme, the transitory element cannot be evaluated. He offers no other argument aside from some comments in the second section as to the number and complexity of the measures the author proposed. There is an attempt, with a sample size of one, to provide support by way of a specified example, which implies that the Reinhardt measure successfully dispelled hyperoptimistic growth projections.

The article focuses on conglomerate earnings per share and real and transitory growth. The evolution of complex business organizations has created conceptual and computational problems with respect to earnings per share, and research in this area is currently very active. One major area deserving attention is the reporting of conglomerate earnings per share. When two business entities are merged, earnings per share may appear to grow when, in fact, growth is not enhanced by the combination. This phenomenon, a purely transitory effect, results when the price-earnings multiple of the acquiring firm exceeds that of the acquired firm. This is typically the situation in the case of conglomerate merger activity. The argument rests, however, on two key assumptions. The first is the absence of a synergistic effect whereby scale economies generate a combined earnings stream in excess of the sum of the component earnings streams. The conglomerate, however, operates by acquiring a portfolio of firms from largely unrelated industries, and scale effects probably are minimal. A second and more crucial assumption is constancy of the price-earnings multiple.

Anthony J. Curley, A Comparison of Alternative Models for Pricing GNMA Mortgage-Backed Securities: Discussion, The Journal of Finance, Vol. 36, No. 2, Papers and Proceedings of the Thirty Ninth Annual Meeting American Finance Association, Denver, September 5-7, 1980 (May, 1981), pp. 486-487

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.

A great deal of interest has been expressed by economists and policy-makers concerning the adequacy of the financing of small and, especially, new firms. This paper presents an empirical study of the adequacy of one particular source of funds—outside equity.

This article presents comments on the article "Present Value Models and the Multi-Asset Problem," by Richard P. Brief and Joel Owen, published in the October 1973 issue of the journal "The Accounting Review." The relevance and adequacy of the internal rate of return model (IRR) is a topic of controversy in financial accounting. Brief and Owen examined the multi-asset dimension of the IRR issue, concluding that IRR is a firm model as contrasted to a single-asset model. Strictly interpreted, this conclusion would serve to render the IRR model useless, since it implies constancy of rate of return for any firm over time. The IRR model is often demonstrated arithmetically, but there is an advantage in analyzing the, model algebraically. When return on investment is realized over a number of periods, the geometric mean may be used to represent average periodic rate of return. If the reinvestment pattern is changed and a future value of $399.30 still results, the geometric mean continues to be 10%, but the internal rate of return is replaced by variable periodic rates of return. If the future value is changed, mean return will no longer be 10%. To calculate combined rate of return, reinvestment patterns must be assumed and the firm should then be considered in the context of a portfolio of assets.