Showing papers in "The Journal of Business in 1961"

Dividend Policy, Growth, and the Valuation of Shares

Abstract: In the hope that it may help to overcome these obstacles to effective empirical testing, this paper will attempt to fill the existing gap in the theoretical literature on valuation. We shall begin, in Section I , by examining the effects the effects of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty. Still within this convenient analytical framework we shall go on in Section II and III to consider certain closely related issues that appear to have been responsible for considerable misunderstanding of the role of dividend policy. In particular, Section II will focus on the longstanding debate about what investors "really" capitalize when they buy shares; and Section III on the much mooted relations between price, the rate of growth of profits, and the rate of dividends per share. Once these fundamentals have been established, we shall proceed in Section IV to drop the assumption of certainty and to see the extent to which the earlier conclusions about dividend policy must be modified. Finally, in Section V , we shall briefly examine the implications for the dividend policy problem of certain kinds of market imperfections.

The Bayesian Approach to Statistical Decision An Exposition

Abstract: ly by the symbols a,, a2, a3. The one-to-one correspondence between action and state of world does, however, constitute a kind of ideal case; the loss function resulting from the inadmissibility of certain actions (fewer actions than states of the world) can easily be derived by introducing the opportunitycost idea. The crucial thing to remember is that, for each state of the world, the best admissible action is assigned zero loss and serves as the standard of comparison for the other actions. In short, the loss table is filled in vertically, not horizontally-measuring from the best action for each state of the world, not the best state of the world for each action. Comparing Tables 4 and 5, we see that the three remaining actions each have less expected loss than before; roughly speaking, by limiting the range of admissible actions we have reduced the possible loss owing to inappropriate action, inappropriateness being measured by loss in comparison with the best action remain-

Approaches to the Study of Decision-Making Relevant to the Firm

Abstract: Summary: In this paper some of the difficulties in utilizing much of economic theory as an aid to the study of decision-making at the level of the firm are reviewed. New theories, techniques and experimentation aimed at overcoming these difficulties are then discussed. The area covered is, of necessity, broad. No attempt is made to provide more than an indication of the type of work in progress and the nature of the problem to which it is addressed. References are supplied for those wishing a more detailed exposition of the many topics noted here.(This abstract was borrowed from another version of this item.)

The Relationship Among Personality Needs, Objective Factors, and Brand Choice: A Re-Examination

Abstract: 1. Eleven out of sixteen experts believed psychological tests to be valuable in motivation research, but only seven believed that motivation research techniques are standardized enough for others to replicate them. 2. The Edwards Personal Preference Scale, given in an abbreviated form to 140 respondents, could not distinguish Ford from Chevrolet owners, based on a sample which bought their cars in 1955-58. 3. Eighteen psychologists could not accurately distinguish the Ford from the Chevrolet owners in a sample of ten car-owners, even though they knew the Edwards profile of each respondent. 4. Objective factors such as age, education, and income did not distinguish Ford from Chevrolet owners in the suburban community of Park Forest, Illinois. 5. The images traditionally attributed to Ford and Chevrolet are not consistently held by buyers of these cars. 6. People tend to assign the needs they value most to the brand of car they have. 7. Loyal and non-loyal buyers of either brand do not exhibit substantial personality differences.

Executive foresight : definitions, illustrations, importance

Abstract: THE general purpose of this paper is to contribute to a clearer understanding of an executive behavior sometimes, but not always or alone, called "foresight." Through selective utilization of psychological sources as well as other sources probably more familiar to the business executive, certain conceptual steps will be suggested that I believe can fruitfully be taken at this time. Although the focus here is on the business executive, the suggested approach would seem to be equally applicable to the leadership of any organization competing in a rapidly changing environment. In the section on background we will observe that concern with the long-term future is more characteristic of managerial than of psychological literature and that the managerial literature neglects the problems of defining foresight and of individual differences in manner of conceiving the future. BACKGROUND

Indexes of Retail Prices of New Cars-Consumer Price Index

Abstract: TH automobile has maintained its position as the most important consumer durable good in the United States economy for a considerable period of time. In shopping for a new car, the consumer has often found it difficult to obtain the exact market price. Although Congress passed legislation in 1958 that required that the list or retail price suggested by the manufacturer be prominently displayed on each new car until it is sold, new cars seldom sell at list price. Moreover, few dealers offer identical percentage or cash discounts to all prospective buyers, different salesmen at a particular dealer often quote different prices to the same customer, and there are differences in prices quoted by different dealers. Many dealers will lower the original asking price when the consumer engages in bargaining for a reduced price. The Bureau of Labor Statistics (BLS) has recognized the fact that consumers allocate a sizable share of their disposable income to the automobile and has included automobile prices as an integral part of the Consumer Price Index (CPI). Since the consumer has difficulty in gaining knowledge about market prices for new cars, it should be interesting to view the methods by which the BLS collects this type of data. In analyzing the price information gathered by the Bureau for the CPI-U.S. City Average Indexes of Retail Prices of New Cars, three main questions should be considered: Is the method for collecting prices of new cars adequate? Is the sample size adequate? Is a similar product being priced over time? The major purpose of this report is to investigate the method of data collection and to suggest modifications if they seem warranted. A brief description of the sample used by the BLS and how the Bureau deals with the problem of similar products is treated first.

The Waste-Makers and the String-Savers:The Waste Makers. Vance Packard

Abstract: r TI~E books economists are accustomed to review are sober, specialized treatises that sell two or three thousand copies and are written with every statemnent carefully qualified lest somneone take exception to it. It thus comes as an abrupt change for me to review Vance Packard's The Waste Makers,' which has been at the top of the best-seller list for mnonths, which sweeps across a broad range of topics, and which deliberately shocks its readers with extravagant statements. Clearly, it is not fair to apply usual academic standards to such a work. Yet it is proper to insist that popular economics be fundamentally sound even when simplified, and journalists who venture into economics should be held to this standard no less than economists who venture into journalism. Packard's main thesis, as almost everyone knows by now, is that American society overemphasizes consumnption, especially the quantity rather than the quality of what it consumes, and that it therefore sacrifices culture, prudence, and a proper concern for the future. He blames these distorted values on the business community, especially on the mnarketers and advertisers who have beguiled the public into accepting false standards. Around this main theme are woven a number of related themes, including the fear of overpopulation and of the exhaustion of natural resources. These concerns are not, of course, original with Packard. He properly acknowledges indebtedness to John Kenneth Galbraith and Fairfield Osborn, among others. However, Packard undoubtedly brings these issues before a wide new audience, which would have been an important service had he not undermined his case with inconsistencies and exaggerations. At his best, Packard reminds one of the muckrakers of half a century ago-of Lincoln Steffens and Ida Tarbell. The resemnblance is fleeting, however, because Packard's targets are often not worthy of his attack. Steffens exposed the shame of the cities; Ida Tarbell did battle with the Standard Oil trust; Packard comnplains that the brushes in paste pots fail to reach the bottom. It is hard to imagine Lincoln Steffens exercised by such an issue. The basic premise of The Waste Makers is that the American economy produces in such abundance that it faces the grave problem of how to dispose of its products. Packard analyzes a number of business practices, from model changes to credit cards, as attempts by producers to escape from this general glut. The glut, unlike that analyzed by John Maynard Keynes, results not from the lack of effective demand or purchasing power but rather from the satiation of wants. The sated consumer indulges trivial whims, which sellers play on or create. The premise of glut underlies the whole structure of The Waste Makers. * Associate professor of economics, University of Chicago.

Experience with an Industrial Research Program in the Social Sciences

Abstract: T HBE development of oil resources in the Middle East must be counted among the outstanding achievements of modern times. Its economic importance can scarcely be exaggerated. In the field of human relations this development has depended on the solution of problems which are as important as they are fresh and interesting. The purpose of this paper is to describe the contributions of the industrial relations research program of the Arabian American Oil Company' to oil operations in Saudi Arabia. The nature and philosophy of this program seem to be of particular interest at a time when economic development has become a central issue of international relations. Aramco operates in Al Hasa, the eastern province of Saudi Arabia. Unlike other countries which are now becoming important areas of development, before the discovery of oil Saudi Arabia (and particularly the area in which oil development has taken place) had experienced virtually no outside influence for a very long time. The first geologists who penetrated the country in 1933 found a land which had known little economic or social change for thousands of years. There was a scattered population around the Gulf of Arabia and some cultivation of the scattered oases, but the land was largely waste. The Bedouins of the desert were following a manner of life largely unchanged from the days of Abraham. Exploration eff orts during the first few years were disappointing, and it was not until March, 1938, that oil in commercial quantities was first found. Outbreak of World War II forced a drastic curtailment of operations, and during most of the war only a skeleton force was maintained by the company to perform minimal operations. With the steadily increased demand for petroleum products throughout the world following the war, Aramco formulated an ambitious program for extending its operations. During 1948 production averaged 385,315 barrels of oil per day. At the end of that year the company had 20,254 employees in Saudi Arabia, of whom 12,226 were Saudi Arabs, 4,184 were Americans, and 3,844 were of other nationalities, including Italians, Indians, Pakistanis, Adenese, Palestinians, Sudanese, and others.2 The figure of 1,095,399 barrels per day achieved in 1959 represents an almost threefold increase in production during the intervening years. Today, thousands of Saudi Arabs have become competent craftsmen. Roads have been built, water * The author has been in Saudi Arabia for eight years as supervisor of socioeconomic research and later as director of the Research and Planning Division of the Arabian American Oil Company. He would like to express his indebtedness to his colleagues whose work is described here, particularly Dr. Stanley Bolin, Mr. Mustafa Eldeen, Dr. Harry Laurent, Dr. George Maranjian, and Mr. Patrick Ward. Views expressed in this paper are those of the author and are not necessarily indorsed by the company.

Linear Programming as a Device for Predicting Market Value: Prices of Used Commercial Aircraft, 1959-65

Abstract: IT WAS reported in September, 1960, that a major aircraft manufacturer had charged off "$14 million to write down to salvage value used aircraft which [the company] had acquired in connection with jet sales."' The aircraft involved were twenty-five DC-7's acquired by a division of the manufacturer at about $880,000 each from a leading airline in 1959.2 Only two years before their value had sunk to the salvage level, new DC-7's were being delivered to airlines at prices in excess of $2 million each. The rapid changes in the values of many types of aircraft owned by practically all the world's major airlines during 1959 and 1960 came as a surprise, frequently a costly one, to many in the industry; yet these price changes were predicted in substantial detail in a research paper first made available to a limited audience in February, 1959, and published in June of that year. In this paper we shall present the technique that was developed to predict the values, and hence prices, of used commercial aircraft for the period 1959-65.3 While the method was developed for this rather limited purpose, it appears to have fairly general usefulness in predicting the values of capital goods. Since the desirability of being able to forecast values and prices of business assets is fairly obvious, the usefulness of a reasonably simple yet * The results of the research project underlying this paper may be found in Stephen P. Sobotka et al., "Prices of Used Commercial Aircraft, 19591965" (Evanston, Ill.: Transportation Center at Northwestern University, 1959 [multilithed]). The authors of this paper are indebted to Paul Keat and Margaret Wiesenfelder, who were joint authors with them in this study, and also Stanley Warner, who assisted with early phases. We are also indebted to Allen R. Ferguson for his encouragement and help as well as to the Transportation Center for its permission to reproduce portions of the original study in this paper.

Intra-Enterprise Conspiracy and the Theory of the Firm

Abstract: ADOCTRINE OF law has been developed by the United States Supreme Court which is wholly in contradiction to the conventional legal and economic conception of business enterprise. It will be the burden of this article to show that the Supreme Court is right and that economics wrongly comprehends the most fundamental building block of its theory: that economists' concepts of the firm are obsolete. Beyond dealing with the doctrine of law, the attempt will be made to develop an alternative conception of enterprise and to illustrate its relevance for social policy.