Earnings per share is a poor indicator of performance

One of the greatest dangers in corporate financial planning is failing to separate investment decision making from financial policy, because poor quality investments can appear to be desirable as a result of the particular financing vehicle employed. Management's focus of attention should not be rates of growth and earnings per share or return on net worth. Rather, the most important measure of corporate performance is the rate of return on total capital employed. The paper identifies the dangers of employing an earnings per share criterion for evaluating corporate performance, and suggests an alternative: focusing on a company's free cash flow, net operating profits after taxes minus the amount of new capital investment required in order to generate future profits. The author presents an analytical framework employing his free cash flow concept which can be applied to pricing and financing acquisitions.     

Improved Bounds on Relaxations of a Parallel Machine Scheduling Problem

We consider the problem of scheduling n jobs withrelease dates on m identical parallel machines to minimize the average completion time of the jobs. We prove that the ratio of the average completion time of the optimal nonpreemptive schedule to that of the optimal preemptive schedule is at most 7/3, improving a bound of Shmoys and Wein.     

THE DISADVANTAGE OF A GOOD REPUTATION: Disney as a Target for Social Problems Claims

Social scientists generally presume that a good reputation has advantages. Yet the Walt Disney Corporation, a firm that has long benefited from a reputation for producing wholesome popular culture, attracts more than its share of efforts to link it to various social problems. In particular, conservative moralists argue that Disney in fact produces morally questionable products, progressive critics claim that Disney's messages help preserve social inequities, and social scientists criticize Disney for fostering inauthentic and alienating entertainment. These claims are a form of blowback—negative reactions to the firm's positive reputation. While blowback makes it easier to construct social problems claims, a good reputation remains a significant resource in deflecting these criticisms.     

Statistics of Primes (and Probably Twin Primes) Satisfy Taylor's Law from Ecology

Taylor's law, which originated in ecology, states that, in sets of measurements of population density, the sample variance is approximately proportional to a power of the sample mean. Taylor's law has been verified for many species ranging from bacterial to human. Here, we show that the variance V(x) and the mean M(x) of the primes not exceeding a real number x obey Taylor's law asymptotically for large x. Specifically, V(x) ～ (1/3)(M(x))² as x → ∞. This apparently new fact about primes shows that Taylor's law may arise in the absence of biological processes, and that patterns discovered in biological data can suggest novel questions in number theory. If the Hardy-Littlewood twin primes conjecture is true, then the identical Taylor's law holds also for twin primes. Taylor's law holds in both instances because the primes (and the twin primes, given the conjecture) not exceeding x are asymptotically uniformly distributed on the integers in [2, x]. Hence, asymptotically M(x) ～ x/2, V(x) ～ x²/12. Higher-order moments of the primes (twin primes) not exceeding x satisfy a generalized Taylor's law. The 11,078,937 primes and 813,371 twin primes not exceeding 2 × 10⁸ illustrate these results.     

Canadian Biotechnology Start-Ups, 1991–1997: The Role of Incumbents'' Patents and Strategic Alliances in Controlling Competition

Fligstein (1996) contends that organizations act to exploit the institutional context in which they are embedded so as to stabilize the competition they face. Drawing on Fligstein's theoretical analysis, we conceptualize incumbent biotechnology firms' patenting and alliance-building activities as attempts to stabilize and control potential competition and analyze how these activities shape rates of founding in the Canadian biotechnology industry. We find that increases in the level and concentration of incumbents' patenting discourage founding, particularly in human application sectors of the industry where development and approval processes are more costly and time consuming. Incumbents' horizontal alliances depress start-ups; vertical alliances stimulate start-ups. Our findings highlight how technology appropriation and strategic alliances structure the competitive dynamics and evolution of high-technology, knowledge-intensive industries.     

“Status! Yes!”: Tom Wolfe as a sociological thinker

The journalist Tom Wolfe draws heavily upon sociology in his works, yet sociologists have largely ignored his writings. This article argues that Wolfe’s journalism presents a coherent vision of contemporary society which emphasizes the importance of what has become a neglected sociological concept—status. Wolfe argues that economic expansion after World War II fostered the emergence of new “statusspheres,” and encouraged status competition. Wolfe treats issues of religion, character, and politics within the framework of status. His work should remind sociologists of the importance of status and the role of irony as a stance for sociological analysis. The author thanks Anne Bowler, Kathleen Lowney, and Lawrence T. Nichols for their helpful comments on an earlier draft of this paper.     

Reconceptualizing and expanding the positive feedback network effects model: A case study

During the 1980s, economists developed the concept of positive network effects and switching costs as the key dynamics of de facto standards competition. They concluded that a positive feedback loop usually “tips” a market to the standard with the most users and complementary assets. While recent scholars have acknowledged that not all markets tip, and suggested some possible limitations on this phenomena, these limitations have not been integrated systematically into a model for competition in these industries. Using examples drawn from the standards contests of the past 20 years, this case study develops an integrated model for competition in these industries.     

Estimating discount rates for environmental quality from utility-based choice experiments

We estimate rates of time preference using a utility-based choice experiment administered to a nationally representative sample of 2,914 respondents. For the full sample, the rate of time preference is very high for immediate benefits and drops off substantially thereafter, which is inconsistent with exponential discounting but consistent with hyperbolic discounting. Estimates of the hyperbolic discounting parameter range from 0.48 to 0.61. Visitors to water bodies have low rates of discount but exhibit hyperbolic discounting, whereas those who do not visit have consistently high rates of discount and low valuations of water quality.     

Selecting Cheap‐Talk Equilibria

There are typically multiple equilibrium outcomes in the Crawford–Sobel (CS) model of strategic information transmission. This paper identifies a simple condition on equilibrium payoffs, called NITS (no incentive to separate), that selects among CS equilibria. Under a commonly used regularity condition, only the equilibrium with the maximal number of induced actions satisfies NITS. We discuss various justifications for NITS, including perturbed cheap‐talk games with nonstrategic players or costly lying. We also apply NITS to other models of cheap talk, illustrating its potential beyond the CS framework.