The doctrine of a class-war proclaimed by American Marxists, 512.—No class divisions or class struggles in the United States, 513.—Social reconstruction not dependent on a socialist party, 518.—How political and economic reforms are achieved, 520.—The evils of society are to be reformed separately, 525.

We survey the recent developments in the literature on corporate diversification. This literature is voluminous, diverse, and quite old. To make the task more manageable, we focus our attention on recent contributions to that subset of the diversification literature that is in our judgment most influential in setting the agenda for financial research. The study of diversification at the corporate level can be grouped into one of two bodies of literature: cross-sectional studies of the link between corporate diversification and firm value (i.e., the diversification discount) and longitudinal studies of patterns in corporate diversification through time. The prevailing wisdom among financial economists throughout much of the last decade has been that diversified firms sell at a discount and that the level of corporate diversification has been trending downward. However, recent research questions both these tenets and a number of studies now suggest that the diversification discount is either not due to diversification at all, or may be a result of improper measurement techniques. Furthermore, some researchers are now beginning to argue that previous attempts to assess changes in the levels of corporate diversification through time is also flawed as a result of biases built into the compustat database in combination with the use of noisy proxies for corporate diversification.

John D. Martin, J. William Petty, An Analysis of the Performance of Publicly Traded Venture Capital Companies, The Journal of Financial and Quantitative Analysis, Vol. 18, No. 3 (Sep., 1983), pp. 401-410

Since its inception the single-index market model has been the subject of a large body of theoretical and empirical research. This study deals with the very difficult issue surrounding the practical implementation of the model in portfolio analysis where significant, nonmarket sources of covariation in security returns are believed to be present.

We explore whether corporate tax enforcement can affect bank lending. Specifically, we hypothesize that tax enforcement efforts aimed at small and midsized enterprises (SME) can improve their information environments, which in turn could lead to increased bank commercial lending. Exploiting the regional structure employed by the IRS until 1999, we find that the corporate tax return audit probability for SMEs is associated with greater commercial lending growth for regionally focused banks. We find similar evidence when exploiting the IRS reorganization from a regional to federal system in 2000. Further results show that tax enforcement's impact on SME informational environments is at least partially responsible for this association: The impact of tax auditing on bank lending is stronger for banks facing greater informational disadvantages and in areas where SMEs face greater hold‐up problems. Finally, we find that the tax audit rate is positively associated with loan portfolio quality, suggesting that tax enforcement can lead to better loan decisions. Our findings are consistent with the tax authority's mandate having important externalities on bank lending and SME access to capital, suggesting that the benefits to tax enforcement go beyond improving tax collection.

John D. Martin, An Analysis of the Efficiency of the Market for New Corporate Bonds in Reflecting Two Sources of Essentially Free Information, 1960-1971, The Journal of Finance, Vol. 29, No. 4 (Sep., 1974), pp. 1333-1334

We examine how the corporate tax system, through its treatment of loan losses, affects bank financial reporting. Exploiting cross-country and intertemporal variation in income tax rates and loan loss provision deductibility, we find that loan loss provisions are increasing in the tax rate for countries that permit general provision tax deductibility. When general provisions are deductible, a 1 percentage point rate increase leads to a provision increase of 4.9% of the sample average. This effect is driven by the tax system's encouragement of timelier loan loss recognition, suggesting that corporate taxation is an important determinant of bank financial reporting transparency.

THE X-inefficiency costs of protection and industrial concentration have been topics of considerable interest in the literature on economic development. Balassa (1975) and Bergsman (1974), for example, have argued that protection, by increasing X-inefficiency, generates a major welfare cost which is not captured by traditional costs of protection calculations, and White (1976) has examined the relationship between inappropriate factor intensities which he associates with Xinefficiency and industrial concentration. The common theme which emerges from each of these studies is that public policy can have a major impact on economic performance not only by influencing factor proportions, but also by influencing the intensity with which a non-measurable input, X-efficiency, is employed. Despite the intuitive appeal of the X-efficiency concept there have been very few empirical tests of this hypothesis. This partly reflects the imprecise nature of the basic concept but also the lack of adequate micro economic data. X-efficiency clearly relates to efficiency within firms so that the most appropriate tests would rely on data on firm-level efficiency. In this paper we propose a direct test of the X-efficiency hypothesis using firm-level data. We build on previous work by Corden (1970, 1974) and Martin (1978) who showed how to model X-efficiency effects using the concept of managerial leisure. We extend these simple models of managerial behavior, emphasizing the role of the external managerial labor market. The model is then used to explore the relationship between changes in public policy, managerial effort and X-inefficiency. Certain predictions of the model are tested using cross-section data from a survey of firms in two subsidized industries in Ghana. Efficiency indices are computed on the basis of a translog frontier production function. Variations in relative efficiency are then correlated with several explanatory variables including the presence or absence of subsidy payments to the firm. Subsidized firms in both industries are found to exhibit higher relative levels of X-inefficiency.