Philip L. Cooley

Most Frequent Contributors to the Finance Literature

curiosity of those involved in the discipline. This analysis adds to the growing amount of introspective finance literature. Authors whose work has appeared most frequently in finance journals are identified and ranked, along with their academic institutional employers. The analysis includes publications in 15 finance journals from their inaugural issues through the end of 1986, making this study the most comprehensive of its type to date.

Abnormal Returns from Merger Profiles

Several studies indicate the presence of large abnormal returns accruing to shareholders of merged firms in the period immediately before the merger. For example, Mandelker [18] reports that stockholders of acquired firms earn abnormal returns of approximately 14 percent in the seven months preceding merger. Franks, Broyles, and Hecht [15] find abnormal returns of 26 percent for British firms during the four months prior to merger; Elgers and Clark [11] report 43 percent abnormal returns accruing over two years before merger to shareholders of acquired firms.

CAPITAL BUDGETING PROCEDURES UNDER INFLATION

S ignificant increases in the general price level for goods and services necessitate modification of traditional capital budgeting procedures to avoid inefficient allocation of capital. During the 1960s, price levels as measured by the Consumer Price Index increased 2.8% per annum on average and thus far in the 1970s have increased an average of 6.2% per annum. A chronic inflationary environment diminishes the purchasing power of the monetary unit, causing large divergences between nominal and real future cash flows. Thus, since rational decision makers presumably are interested in real returns, they should explicitly include the impact of inflation on investment projects when making capital budgeting decisions. The purpose of this paper is to present a normative framework, building on the traditional net present value model, that explicitly incorporates anticipated inflation and allows for uncertainties in real cash flows. Failure to consider the impact of inflation tends to produce suboptimal decisions for several reasons. For example, cash-flow estimates must embody anticipated inflation if the discount rate contains an element attri-

Financial Objectives of Small Firms

Goals perceived by business managers in practice may differ from those postulated in finance theory. Such a divergence between practice and theory is found in a perceptual survey of small-business managers. This paper reports on the financial goals perceived as important by small-business managers and discusses the implications of the findings. 1 1 The authors gratefully acknowledge the financial and administrative support provided by the Petroleum Marketing Education Foundation. Only the authors’ views are reported here, however,

Small Business Cash Management Practices

Cash forecasting, investing, and controlling are three basic elements of a cash management program. Surveys of Fortune 500 firms reveal large firms having considerable sophistication in dealing with these cash management activities. Small-business practices probably differ from those of large firms due to time contraints, financial limitations, or lack of awareness. The following article reports on the cash management practices of 122 small businesses engaged in petroleum marketing. Although some deficiencies in cash forecasting and investing are noted, the small companies appear quite sophisticated in controlling their cash flows.

Managerial pay and financial performance of small business

Abstract The purpose of this study is to examine empirically whether managerial pay of small-firm executives is more closely related to profitability or generation of sales. Conventional economic doctrine supports the hypothesis that chief executives are paid primarily to advance profitability. The contrary hypothesis, given impetus by Baumol [2] and Galbraith [8], asserts a closer relationship between compensation and sales. Previous studies of large corporations have produced conflicting results. Regression analysis of the 78 small firms in this study reveals managers receiving compensation correlating fairly closely with both profitability and sales. The cumulative forces at work in these firms impacting upon managerial pay appear to have wrought a linkage conductive toward motivating managers to be both “bottom line” and marketing oriented.

Market performance of options on the Chicago board options exchange

Abstract Unproven assertions about potential option returns have accompanied increased interest in option trading since formation of the CBOE. This paper presents an analysis of return distributions from buying and selling CBOE options. Generally, buying options resulted in returns that were negative and lower than returns from buying the underlying stocks. Average returns from writing covered options exceeded returns from buying both options and stocks. Commissions and taxes shifted location of return distributions for all three investments, particularly reducing returns from buying options.

Contrasting roles of financial theory and practice

Abstract Reconcilation between conflicting roles of financial theory and practice reveals a common ground. A framework is presented for placing financial theory and practice in perspective.

Financial Leverage Analysis for Small Business

The effects of financial leverage on equity returns may be analyzed in either of two frameworks. When using the net-operating-income model to evaluate leverage, the small-business analyst, unwittingly and by default, makes several implicit assumptions. Most of these implicit assumptions are unrealistic and too restrictive for small businesses. Unencumbered by such restrictive conditions, the cash-flow model can be tailored to meet the distinctive characteristics of small businesses.