This paper investigates whether predatory price cutting reduces a trust's cost of acquiring its competitors. A variant of the Litzenberger-Rao valuation model is estimated with the expenditures for 43 rival firms purchased by the old American Tobacco Company between 1891 and 1906. The coefficient estimates indicate that, ceteris paribus, alleged predation significantly lowered the acquisition costs of the tobacco trust both for asserted victims and, through reputation effects, for competitors that sold out peacefully. Although qualified by data limitations, these results support the classical view of predatory pricing as a systematic business practice.

Predatory Pricing and the Acquisition Cost of Competitors

This paper attempts to reconcile the conflicting results reported in prior interest rate sensitivity studies that utilized the stock returns of financial institutions. By analyzing the interest rate elasticities during different interest rate cycles and adjusting for different monetary policy regimes, this paper suggests that sample period effects rather than methodological differences account for the conflicts presented in previous studies. More specifically, the empirical results indicate some asymmetrical interest rate sensitivities during various interest rate cycles. For example, the stock returns of savings and loan institutions were found to be more sensitive to falling interest rates. On the other hand, the stock returns of banks appeared to be more responsive to rising interest rates. Consequently, any attempt to employ models utilizing aggregated data either for policy making or to construct portfolio strategies will result in time aggregation bias and misguided decision making.

Interest Rate Sensitivity, Asymmetry, and the Stock Returns of Financial Institutions

Durand (David) - Bank stock prices and the bank capital problem.

A Multivariate Analysis of Small Bank Stock Valuation

The one-share, one-vote rule applicable to the governance of most business firms provides for proportional voting power which differs substantially from proportional shareholdings of investors. This problem is particularly acute in small firms where several (or many) shareholders may hold significant proportions of shares. This paper reviews well-known game theoretic algorithms (weighting or vote assignment schemes) for the alignment of power with proportional shareholdings. It also provides a simple measure of the “misalignment of power from proportional shareholdings” and discusses its application in determining more equitable vote reassignment schemes.

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Voting and Power in the Small Firm: Alternatives to the One-Share, One-Vote Rule

This paper investigated factors that affect the valuation of controlling shares of closely held bank stocks. With regard to traditional financial factors, earnings and growth variables proved to be important. In addition, the prior ownership position of the buyer was important in pricing the stock. Other non-traditional valuation factors were investigated with only limited success. The statistical work was enhanced by a robust regression technique.

O. Maurice Joy

Papers

Valuation of controlling shares in closely held banks