The pivotal role of earnings expectations in equity valuation and therefore in certain areas of business finance is widely recognized, yet there is little theoretical or empirical evidence as to the manner in which investors and other groups actually formulate their estimates of future earnings. The resulting necessity to utilize proxy or indirect measures of expected earnings specified largely according to the predispositions of the investigator has led to numerous difficulties in the testing of cost of capital propositions and models of equity valuation.1 This study is intended to supply a preliminary response to the question of how earnings expectations are determined by appraising the extrapolative component of a limited sample of short-term estimates of earnings per common share. More specifically, the issues are the extent to which the earnings estimates (1) are extrapolative in nature and (2) may be approximated by familiar, naive, extrapolative techniques. In this context, “extrapolative” simply means determined by application of a specified weighting scheme to prior observations in the time series.

TIONS." Although any papers which fit into the general topic area will be considered, highest priority will be given to papers dealing with the management of financial institutions. We would like to see papers which apply developed theory to the problems facing the managers of financial institutions. Papers developing new theory with potential application or those which present actual applications are included in this priority. The intent is to develop the link between theory and practice as much as possible within the general confines of the topic area.

Journal Article A Non-cooperative Equilibrium for Supergames Get access James W. Friedman James W. Friedman University of Rochester Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 38, Issue 1, January 1971, Pages 1–12, https://doi.org/10.2307/2296617 Published: 01 January 1971

Journal Article Clontarf Revisited Get access W. M. Gorman W. M. Gorman Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 38, Issue 1, January 1971, Page 116, https://doi.org/10.2307/2296629 Published: 01 January 1971

Journal Article The Existence and Persistence of Cycles in a Non-linear Model: Kaldor's 1940 Model Re-examined Get access W. W. Chang, W. W. Chang State University of New York at Buffalo Search for other works by this author on: Oxford Academic Google Scholar D. J. Smyth D. J. Smyth Claremont Graduate School Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 38, Issue 1, January 1971, Pages 37–44, https://doi.org/10.2307/2296620 Published: 01 January 1971

Depreciation, Replacement costs, Cost of Capital, Inflation

Financial ratios, Firm performance, Bankruptcy, Risk

Economic historians should thank Larry Neal for his careful revision of the United States railroad investment series for the period between 1897 and 1914 [5]. However, the second major part of his article concerning the determinants of investmenit behavior over this period suffers from deficiencies of interpretation and requires further analysis which is the object of this note. Neal's thesis is that financial models, incorporating interest rates and cash flow variables, better explain railroad investment expenditures over this period than crude acceleration type mechanisms. In fact, he argues the time period 1897 to 1914 logically can be divided into two periods at the year 1907. In the earlier period (1897-1907) Neal argues that both easy access to external funds and the better use of internal funds are the primary explanations for investment behavior, while this was not the case after 1907. This thesis directly contradicts the earlier discussion of railroad investment made by Jan Kmenta and Jeffrey Williamson (K-W) [4]. The K-XV hypothesis purports that external costs were not important during this period and some sort of acceleration mechanism can best explain investment behavior. It is demonstrated below that the dominant determinant of long run railroad investment behavior over this period is the acceleration principle as asserted by K-W but that outside (as opposed to Neal's inside) financial conditions (the demand for financial instruments) contributed to the cyclical fluctuations of investment expenditures in the period prior to 1907.

ECONOMETRIC studies of production at the aggregate and semiaggregate levels have concentrated largely on the relation between capital and labor inputs, on the one hand, and some measure of real gross value added on the other. Studies that have gone beyond this scope to include a larger number of inputs have been confined to a highly restrictive class of production functions. Input-output studies using fixed production coefficients and studies in the agricultural field using CobbDouglas functions fall within this category.' A growing number of important economic questions, however, cannot be answered within the traditional models, but require instead a framework that allows a richer specification of the substitution possibilities among factors of production. The question of whether there are differences in the extent of substitutability or complementarity between capital and different skill categories of labor, which has been considered by Bowles [4], Cook [6], and Griliches [8], is one example where a more general production model is required. In addition, it is likely that the estimation of production parameters, in particular the elasticity of substitution (ES) between capital and labor, is biased when factors other than capital and labor are ignored. This paper presents the results of an econometric investigation of these problems using time-series data for Swedish manufacturing for the period 1870-1950. Section II presents some simple evidence that shows the extent of variation in factor output ratios in the data. Variation in these ratios is not consistent with the conditions under which the use of a valueadded production function can be justified. Section III then presents a general production model that allows the measurement of the price responsiveness of factor utilization, and section IV discusses the results of estimating the model. Finally, in section V the results of the general model are compared with the results obtained using the alternative gross value added framework and using direct production functions.