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Much of the recent work in financial economics can be viewed as an attempt to synthesize contemporary financial market theory with the theory of the firm under uncertainty. This line of research analyzes firm behavior using models that explicitly incorporate the capital market's valuation of risk. The early results indicate that this basic approach holds great promise in its ability to consider the financial market effects on a host of decisions made at the firm level. In this paper we extend the recent work of Greenberg et al. and Shrieves on the choice of input mix under uncertainty. In particular, we demonstrate that the qualitative nature of the disturbance term, along with the decision sequence, is a crucial determinant of the overall effect of uncertainty on the optimal input mix of a firm. Using general demand and production functions in conjunction with a mean-variance framework for financial valuation, we demonstrate the differential effects of systematic and nonsystematic risk on the firm's choice of an optimal input mix. Consistent with earlier work in economics, this analysis demonstrates that uncertainty, regardless of the source, has important implications for the firm's choice of technology. When the source of the uncertainty is firm-specific, there is no need to take account of any reaction in the capital markets; the risk-free rate of interest is the only relevant financial market variable. We refer to the relationship between this type of uncertainty and the choice of an optimal input mix as the “technical effect.” However, when the uncertainty is of the type that affects all firms in the economy, the technology decision must also explicitly recognize the reaction of the financial markets. In a rate-of-return framework, this market feedback will serve to alter the firm's (or project's) required capitalization rate. This “financial effect” will, for the majority of firms, partially reverse the technical effect. [ABSTRACT FROM AUTHOR]

The purpose of this study was to examine whether the conversion of mutual savings and loan associations to the capital stock form of organization, using an approach that would involve free distribution of shares of stock to accountholders, would be disruptive to the S&L industry and the mortgage and housing markets that the industry supports. The question arises because free distribution type conversions would permit accountholders of converting associations to receive "windfall gains" (in the form of free cash and/or stock distributions). These gains could provide strong incentive to depositors at nonconverting S&Ls and other financial institutions to shift funds (savings balances) to prospective converting institutions in order to qualify for the windfalls. Thus, the specific focus of this study is twofold: (1) to identify the likely magnitudes of shifts of funds into prospective converting institutions that would occur if S&Ls were authorized to convert under the free distribution approach, and (2) to analyze the disruptive impact of these shifts of funds on both the S&L industry and the mortgage and housing markets. [ABSTRACT FROM AUTHOR]

Based on capital stock, in total, over six trillion euros less was invested in the European Union between 1999 and 2007 than in the non-European OECD countries, including the US, Canada, and Japan. In the euro area, investment was more than 7.5 trillion euros less than in non-European OECD countries. In virtually all EU member states, gross fixed assets (capital stock) are older than the OECD average and also demonstrate slower growth. This is particularly true for industry, which is expected to play a key role in Europe's recovery. In order to achieve a higher growth rate, Europe must tackle this lack of investment across the board. Just implementing investment programs in individual countries, such as the southern European crisis countries is not enough. In order to launch a broad investment offensive across the EU as a whole, specific steps must be taken. To tackle the lack of investment in the long term, measures should include an efficient competition policy and investment-friendly tax policy. [ABSTRACT FROM AUTHOR]

The differences in the extent of liability of owners for the obligations of a company are the main reason for the existence of different rules with respect to the amount and type of minimum initial capital. According to the authors, this problem is satisfactorily resolved in the Serbian Company Law. On the other hand, the founders of the company alienate part of their property to the newly established company. Accordingly, the question is whether this alienation should be taxed under: (1) general rules; or (2) the special rules aimed at encouraging investments. Based on the analysis of comparative and Serbian regulations, the authors conclude that tax incentives should be prescribed in this respect. With regard to the above, it is suggested that Serbian regulations should allow the roll-over relief for capital gains realized in the process of establishing a new company and that other detected deficiencies should be corrected. [ABSTRACT FROM AUTHOR]

This paper examines the market response of the reverse stock splits by using the effective date to trace the abnormal returns after reverse splits over the period of 1981 to 2010:3. The findings show that the short-term behavior of the abnormal returns on the effective date is negative and highly significant for all firms. The abnormal returns on the effective month are negative and highly significant. As expected, the cumulative abnormal returns are negative and significant at 10 % level over the period of +1 to +12 months. However, the cumulative abnormal returns from month +13 to month +36 are significantly positive. Our findings also support that institutional investors show confidence by increasing mean holdings of reverse splits of large capital stocks. [ABSTRACT FROM AUTHOR]

This research analyzes manufacturing growth and decline across metropolitan and nonmetropolitan regions during the 1972-2002 period. We decompose real value added growth across local labor market areas in the lower 48 U.S. states into contributions from labor, capital, and total factor productivity. We then estimate a model describing the long-run growth of labor, capital, and productivity and find that increased productivity increases the growth of labor and capital, as well as a positive correlation between labor and capital stock growth. We also find evidence that human capital investment and agglomeration economies encourage productivity growth, while unionization discourages it. [ABSTRACT FROM AUTHOR]

The article discusses the role of capital controls, including exchange controls affecting current transactions, as a crisis policy response. The International Monetary Fund (IMF) must consider approving nondiscriminatory exchange controls affecting current international transactions on a temporary basis in times of crisis for financial stability. However, the use of exchange controls as a crisis response tool are likely to be limited and is not helpful for countries to further restrict their freedom of movement through free-transfer clauses without balance-of-payments safeguards in bilateral investment treaties. Meanwhile, foreign investors sought to move capital invested in a range of emerging-market economies into safe havens in the early stage of the crisis.

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Overvalued equity provides a strong incentive for managers to report earnings that do not disappoint the market ( Jensen, 2005 ). We find that this can be extended to highly valued equity more generally. In the year following the classification as highly valued and compared to firms with less extreme valuations, highly valued firms have significantly higher discretionary accruals and exhibit a more pronounced positive association between discretionary accruals and proxies for the likelihood of failing to meet earnings targets. These findings are consistent with the use of discretionary accruals to manage earnings in support of extreme valuation. Because highly valued equity will likely result in CEOs with valuable stock and stock option portfolios, we test whether and show that the overvalued equity incentive is incremental to a CEO's equity portfolio incentive. One implication is that directors and audit committees should be especially on guard for possible earnings management when a firm has extremely high valuation multiples and when the CEO has a lot of equity at risk. [ABSTRACT FROM AUTHOR]

This paper presents the circumstances under which foreign aid can immiserize a small, tariff-distorted economy, highlighting the role played by the nontraded sector in generating this outcome. An inflow of aid, provided in the form of an increase in the capital stock, can reduce real income of a small, tariff-distorted economy if: (i) the inflow results in an increase in the price of the nontraded good and the nontraded good and imports are sufficiently strong complements in demand; or (ii) if the inflow leads to a reduction in the price of the nontraded good and the nontraded good and imports are substitutes in demand, provided the degree of substitutability is not too large. [ABSTRACT FROM AUTHOR]

The extant literature has paid scant theoretical attention to the tripartite interaction among increasing environmental regulations, the resulting decision by a polluting firm to upgrade its capital stock, and the impact of innovation on this decision. Hence, the authors theoretically analyze this tripartite interaction when a polluting firm faces adjustment costs to upgrade its capital stock. First, they construct a dynamic model of regulation driven investment by a polluting firm. Second, they specify the conditions characterizing efficient investment. Third, they study the impact of an unanticipated increase in innovation on the polluting firm's steady-state capital stock. Fourth, they analyze the impact of an anticipated increase in innovation on the polluting firm's steady-state capital stock. Finally, the authors discuss the relationship between the polluting firm's internal shadow price of capital and the stock market value of a unit of this firm's capital. [ABSTRACT FROM AUTHOR]

Copyright of Revue Française de Gestion is the property of John Libbey Eurotext Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Recent studies found a robust positive correlation between the frequency of natural disasters and the long-run economic growth after conditioning for other determinants. This result is interpreted as evidence that disasters provide opportunities to update the capital stock and adopt new technologies, thus acting as some type of Schumpeterian creative destruction. The results of cross-country and panel data regressions indicate that the degree of catastrophic risk tends to have a negative effect on the volume of knowledge spillovers between industrialized and developing countries. Only countries with relatively high levels of development benefit from capital upgrading through trade after a natural catastrophe. ( JEL O13, O30, F18) [ABSTRACT FROM AUTHOR]

There is evidence in the literature that corruption lowers the level of investment and the productivity of capital stock in an economy. This paper extends the literature by presenting evidence that investment allocation decisions are affected in a significant way by corruption. The most commonly used measure of the efficiency of overall investment in an economy is the incremental capital output ratio (ICOR), measured by the ratio of gross investment to the change in the gross domestic product. The inverse of the ICOR measures the productivity of investment in an economy. When the known explanatory factors for inter-country variation in the ICOR are taken into account, the incidence of corruption has a statistically significant negative effect on the efficiency of investment for a panel of 90–140 countries during 1995–2004. The strength of this effect increases with the incidence of corruption. The econometric model used is robust to unobserved and time-invariant country fixed effects, feedbacks from current stochastic shocks to subsequent values of the determinants of investment efficiency, and the persistence of efficiency. [ABSTRACT FROM AUTHOR]

The implications of the division of labor, capital, and technology for economic growth have long been a fundamental issue in development economics. This paper employs the bounds testing approach to cointegration to examine the relationship between the division of labor, capital accumulation, communication technology, and economic growth for China over the period 1952–99. We find that in the long run, capital stock and the division of labor both have statistically significant positive effects on growth, while in the short run the effects are not significantly positive. Telecommunication technology, rather surprisingly, has a statistically insignificant impact on growth both in the long run and in the short run. Our findings indicate that there exists a long run equilibrium relationship between capital and the division of labor on the one hand, and economic growth on the other, thereby lending support to the division of labor theory of growth. [ABSTRACT FROM AUTHOR]

The focus of this paper is to investigate the importance of the capital stock in the determination of wages and unemployment in a range of EMU countries and to compare the results across countries. A time-series analysis is conducted in the case of nine euro area countries, which were selected solely on the basis of data availability and consistency: Austria, Belgium, Finland, France, Germany, Italy, Ireland, the Netherlands and Spain. The paper begins with a short review of the literature on capital stock and unemployment, before it deals with the theoretical model. This is followed by estimation and testing of the theoretical model put forward, using both time-series and panel data. The results are supportive of the main hypothesis of the paper: capital stock is an important determinant of unemployment and wages in the countries considered for the purposes of the paper. [ABSTRACT FROM AUTHOR]

This paper studies a one-sector optimal growth model with linear utility in which the production function is only required to be increasing and upper semicontinuous. The model also allows for a general form of irreversible investment. We show that every optimal capital path is strictly monotone until it reaches a steady state; further, it either converges to zero, or reaches a positive steady state in finite time and possibly jumps among different steady states afterwards. We establish conditions for extinction (convergence to zero), survival (boundedness away from zero), and the existence of a critical capital stock below which extinction is possible and above which survival is ensured. These conditions generalize those known for the case of S-shaped production functions. We also show that as the discount factor approaches one, optimal paths converge to a small neighborhood of the capital stock that maximizes sustainable consumption. [ABSTRACT FROM AUTHOR]

No single way of measuring the capital stock has been agreed upon by regional researchers. The authors examine five methods that have been proposed for measuring the capital stock in state manufacturing. They discuss the properties of each of the five capital stock allocation methods and then estimate state efficiency levels and productivity growth rates during the period 1982 to 1996 for each of the five methods. Their findings indicate that efficiency levels are significantly different for states depending on which method of capital measurement is used. However, productivity growth rates do not appear to be as sensitive to capital measurement, averaging 2.5 to 3 percent annual rates for the period. [ABSTRACT FROM AUTHOR]

The paper critically examines the dominant neoclassical views on the adoption of mandatory Fully Funded (FF) pension schemes as a partial or complete substitute for the unfunded Pay-as-you-go (PAYG) type. According to this view, such a transition will have the positive real effect of endowing future generations with higher capital and output per head, since it should cause a once and for all increase in aggregate saving and the capital stock. This would prepare the economy for future demographic developments. We examine three obstacles to such a claim. To begin with, the reform may fail to boost workers' marginal propensity to save, since workers may contract their voluntary saving to compensate for the larger mandatory saving to FF schemes. Second, if PAYG's payroll contributions are reduced and diverted to Pension Funds, the larger private saving supply will be balanced by lower government saving, if the government is committed to honouring the current pension payments. Third, Keynes's saving paradox, reinforced by the capital theory critique inspired by Sraffa, shows that the rise in the marginal propensity to save does not result in an increase in capital accumulation, but rather in a fall in income and employment. [ABSTRACT FROM AUTHOR]

The formation of social capital is hypothesised to enhance collective efforts for soil conservation. The Landcare Program in the southern Philippines promotes simple conservation practices in upland environments by supporting community landcare groups and municipal landcare associations, thus augmenting social capital. A study was conducted in 2002–2003 to evaluate the Landcare Program, using a mix of quantitative and qualitative techniques. In the present paper, the relationship between social capital formation and adoption of soil conservation in the Municipality of Lantapan is investigated. It is concluded that the Landcare Program as a whole created a valuable stock of bridging social capital, rapidly accelerating the adoption of contour farming measures, but that on-going support is needed to maintain this capital stock. [ABSTRACT FROM AUTHOR]

Standard cross-national measures of corruption are assembled through surveys. We propose a novel alternative objective measure that consists of the difference between a measure of the physical quantities of public infrastructure and the cumulative price government pays for public capital stocks. Where the difference is larger between the monies spent and the existing physical infrastructure, more money is being siphoned off to mismanagement, fraud, bribes, kickbacks, and embezzlement; that is, corruption is greater. We create this measure for Italy's 95 provinces and 20 regions as of the mid-1990s, controlling at the regional level for possible differences in the costs of public construction. [ABSTRACT FROM AUTHOR]

This paper constructed portfolios according to the growth rates and their stability of firm's total stockholders' equity per share and net income per share, using all the firms' information of Shanghai A-share market, We found that the market exhibits some overreaction to the growth rate of firm's net income per share, and isn't sensitive to the stability of firm's growth rates. [ABSTRACT FROM AUTHOR]

Based on a survey of the appropriate literature and on separate investigations concerning distributions of asset lives and depreciation patterns of vehicles, gross and net capital stocks as well as depreciation at constant prices and at replacement cost have been estimated for Austria using the Perpetual Inventory Method. The problem of the limited length of investment time series has tried to be overcome by assigning a fixed age to each initial stock. The level of disaggregation for the calculations is ÖNACE 2-digit and this has been further broken down to the categories buildings, machinery and equipment, and vehicles. All available a priori knowledge and data have been incorporated. All estimates of capital stocks and depreciation based on industry level investment data are subject to uncertainty due to the lack of information at the asset type level. In order to give a quantitative assessment of this uncertainty, for the public as well as for the private enterprise sector, several scenarios have been calculated. In addition a thorough sensitivity analysis with respect to all relevant parameters including the age assigned to the initial stock has been performed. [ABSTRACT FROM AUTHOR]

This paper reviews the evidence of public infrastructure's impact on economic development. The evidence indicates the marginal net social returns is low. The paper also examines the effect of economic, demographic, and political forces on infrastructure investment. Finally, the literature suggests that improving maintenance and reducing congestion can greatly increase the benefits from the existing public capital stock. [ABSTRACT FROM AUTHOR]

It has been possible to formulate some competing theories in such a manner that they may be successfully compared within the confines of a systematic procedure. However, in as much as part of the structure remains to be determined empirically, some of the contending theories may be ruled out in the process of respecification. Respecification or 'Causal Modelling' thus becomes critical to the development of the investment equation and concomitantly the generality of the initial maintained hypothesis is crucial. Having undertaken a specification search and still retaining the general model (i.e. clay--clay and putty--putty specialisations have not emerged) it is nonetheless possible to test the alternatives as nested versions of the general model. This has been done and both were strongly rejected against the general model, confirming its superiority as a representation of the process generating the data. The nominal expenditure representation of the investment expenditure decision provides an alternative to estimating models in real terms. Unfortunately the dominant model is not strictly derived from a putty--clay set up (though it is consistent with the effects that such a set up yields) and could equally well be interpreted as a flexible accelerator model with credit rationing. However it is possible to conclude that the financing variable is relevant in such a model lending support to either a putty--clay or credit rationing formulation. [ABSTRACT FROM AUTHOR]

Regulators sometimes review a regulated firm's input decisions in retrospect (i.e. with "20-20 hindsight") and punish bad outcomes rather than bad decisions. When such practices are applied consistently to contracts for variable factors in a regime with profit regulation, the firm increases its capital stock and relies more heavily on spot market purchases for its variable inputs; the firm's profits are reduced, but welfare effects on consumers are ambiguous. If applied as a type of "stochastic price cap" regulation, however, hindsight review can induce variable input choices that minimize expected costs. [ABSTRACT FROM AUTHOR]

The effect of inflation on asset returns has become an important current issue both on theoretical and empirical grounds. The basic relationship is between the nominal rate of return and the expected rate of inflation-known as the "Fisher effect." Because of the policy implications, economists have accepted the "Fisher effect" both on theoretical and empirical grounds, although some of the studies show a significant negative relation between the common stock returns and inflation. This means that common stocks cannot serve as a hedge against inflation when the expected rate of inflation is high. There is no satisfactory explanation of this negative relationship so far. Another study has shown a positive relationship using British data. In this paper, the Fisherian type relationship between the stock returns and inflation will be reestimated and some of the econometric specification problems will be resolved. The purpose of this study is to employ a series based on directly observed price expectations.

Abstract--We estimate labor demand equations derived from a (restricted variable) cost function in which "experience" on a technology (proxied by the mean age of the capital stock) enters "non-neutrally." Our specification of the underlying cost function is based on the hypothesis that highly educated workers have a comparative advantage with respect to the adjustment to and implementation of new technologies. Our empirical results are consistent with the implication of this hypothesis, that the relative demand for educated workers declines as the ages of plant and (particularly) of equipment increase, especially in R & D-intensive industries [ABSTRACT FROM AUTHOR]

We analyze the steady state and transitional dynamics of two-sector models of endogenous growth. The necessary conditions for endogenous growth imply that transitions depend only on a measure of the imbalance between the two sectors such as the ratio of the two capital stocks. We use the Time-Elimination method to analyze the transitional dynamics. Three main economic forces drive the transition: a Solow effect, a consumption smoothing effect, and a relative wage effect. For plausible parameterizations the consumption smoothing effect tends to dominate the relative wage effect; transition from relatively low levels of physical capital is accomplished through higher work effort rather than higher savings. [ABSTRACT FROM AUTHOR]

This paper examines the theoretical issues associated with the construction of establishment-level capital stock estimates and proposes a methodology to generate such estimates given the establishment-level data on gross capital formation available at Statistics Canada. This methodology is then applied to a set of 36 establishments in the Canadian newsprint industry to obtain capital stock estimates in gross and net terms in constant, current and original dollars for the years 1975 to 1985. These estimates are then evaluated by comparing them to responses from a special survey of capital stock values conducted by Statistics Canada in 1984. On a relative basis the constructed estimates are consistent with the values provided by the survey. [ABSTRACT FROM AUTHOR]

This article considers the impact of demand uncertainty on the desired physical durability of fixed assets. The purchase of fixed capital represents a commitment of resources long before they will be used. During the typical service life of plant and equipment, firms experience permanent shifts both in technology and in their economic environment, as well as repeated transient shocks. The durability of fixed capital makes it impossible to achieve perfect synchronization between the capital stock and the demand for the services of this stock. Periods of so-called excess capacity are inevitable. Durability refers not to the realized service lives or depreciation rates of assets but to their ex-ante planned economic lives. It has long been realized that asset durability is controlled by firms and industries. The article presents a theoretical analysis of the impact of uncertainty about the demand for capital services on the optimal durability of fixed assets. The general proposition that is proved is that when investment is irreversible, demand uncertainty lowers desired durability of assets. This proposition leads to testable implications for the correlation between the uncertainty of capital contribution and the average durability of fixed assets.

In this paper, a dynamic decision model of the firm with a delayed adjustment of employment and investment is developed. Special attention is devoted to dynamic inefficiencies, i.e. underutilizations of the capital stock and labour hoarding. Market disequilibrium is introduced by allowing for a sluggish adjustment of wages and prices. The model of the firm is complemented by explicit aggregation, and the aggregate model is estimated for the FRG for the period 1960 to 1989. The empirical results reveal that dynamic adjustment constraints for employment and capital contributed to the persistence of unemployment in Germany in the 1980s. [ABSTRACT FROM AUTHOR]

The balanced growth restrictions implied by the neoclassical growth model imply that output, the private capital stock and the public capital stock share the same stochastic trend. We analyse the postwar US data on real output, real private capital stock and real public capital stock and find that the balanced growth restrictions cannot be rejected by the data. Removing the common stochastic trend from each series allows the estimation of output elasticities that is free from the spurious regression problem. The results support Aschauer's (1989) claim that, at the margin, public capital is more productive than private capital. [ABSTRACT FROM AUTHOR]

Recently, savings rates have fluctuated considerably in the USA. The implications of these movements have interested both policy makers and economists. This paper considers two reasons why savings may change: (i) a change in the economy's desired long-run capital stock, and (ii) the economy's desire to smooth its consumption through time. To identify both kinds of movements in US savings, the permanent income hypothesis (PIH) is modified to incorporate discrete breaks. Evidence suggests that discrete breaks in saving occurred during 1972-74 and again during the mid 1980s. And, when breaks are accounted for, it is found that rises (falls) in saving anticipate falls (rises) in output, suggesting that people use savings to help smooth consumption over time, consistent with the PIH. [ABSTRACT FROM AUTHOR]

Capital stock variables appearing in investment and other equations are almost always constructed by the 'perpetual inventory method'. A major problem with this method is that the initial real capital stock, K(O), that is implicitly a component of every measure of the capital stock, can rarely be measured with any degree of accuracy. It is shown that such measurement error can frequently lead to severe bias in the estimated coefficients of investment functions. This paper proposes a method to bypass this source of measurement error and illustrates its use with a practical application. [ABSTRACT FROM AUTHOR]

This article examines the sensitivity of growth plans with respect to changes in the target capital stocks. An expanded growth model where available capital in each period includes stocks endogenously produced as well as exogenously supplied (or demanded) stocks is used. It considers the sensitivity of optimal programs to changes in the exogenous stocks for two cases. In the first case the results of Brock and Mitra are extended to include an increase in the level of the exogenous stock in some arbitrary period of the planning horizon. In the second case, these same results are shown to hold when the net total of exogenous stocks is redistributed so an increase in one period would be balanced by decreases in other periods.

This article focuses on recent court rulings. In one case, the receiver of the First National Bank of Florence filed a petition for authority to sell the assets of the insolvent bank. The assets were to be divided into two classes: one group to be sold outright to the purchasing bank and the other to be collected by the new corporation for the benefit of the creditors of the insolvent bank. It was held that the court had no authority to order the sale because it exceeded the statutory powers of the receiver. In the case of Central National Bank v. Sutherland, a Nebraska statute taxed shares of capital stock in banks at a mill rate and taxed other moneyed capital at only 25 per cent of that rate.

When treasury shares are acquired, the transaction results in the reduction of contributed capital, legal capital remains the same, and the restriction of retained earnings. If legal aspects are to be demphasized, it appears that the "direct adjustment to capital stock" is the best solution. But even though legal requirements are not ranked first in importance, they should not be forgotten. In this case, perhaps the "indirect adjustment to capital stock" is a better alternative. Accounting recognition must also include balance sheet classification as to Stockholders' equity. Differences in state laws would require a different arrangement. However, in both cases total invested capital remains the same. If a temporary restriction of retained earnings is needed, it can be shown in a footnote or as an appropriation of retained earnings. In a state which requires a permanent reduction of retained earnings, the nature of the transaction is a dividend rather than a "retirement." And so it must be recorded as a dividend. The nature of the transaction must be given first priority in recording treasury stock. Then, any legal aspects may also be satisfied in statement presentation.

More than six years have passed since the Subcommittee on Terminology of the American Institute of Accountants recommended the discontinuance of the term surplus in accounting. This pronouncement has had considerable effect in accounting circles, and a definite trend away from the use of the condemned term can be perceived. It is true the economic meaning of surplus is different from its accounting signification. To the economist, surplus represents unearned income due to the inelasticity of the supply of any productive factor, conceptually more or less the same as the economic rent of land. The literature of both professions contains many articles comparing the dissimilar meanings of homonymic words common to the two disciplines, so that no student of either should be unduly misled by a different signification of the term surplus in the other profession. Certainly the economist has no greater claim to use of the term than has the accountant. With reference to the problem of the inclusion in capital or paid-in surplus of premium paid on capital stock, the major discussion in the legal decisions revolves around whether such premium on stock is available for dividends, each case interpreting the statute of a particular state.

The article discusses modifications made to a family tree introduced by scholar Lewis A. Carman in 1932. He used the tree to analyze the use of equity ratios in distributing the combined capital stock and surplus on the balance sheets of companies affiliated by both unilateral and bilateral common stockholdings. The family tree is adapted very slightly to have it obey some modem principles of family tree construction like arrows point with the force of authority, percentages of ownership and separate family trees are made for each class of stock. In 1948, the use of equity ratios was extended to the preparation of income and surplus statements involving both common and preferred stockholdings, and a mechanical method of calculating the equity ratios was introduced for use after the ratios of the bilateral groups have been computed. In 1949, a new formula for computing the equity ratios for bilateral stockholdings was developed in an advanced course in consolidations at The University of Texas by Myles Joseph Aaronson. The new formula is very simple to use because the determinant aspects cancel out leaving an equation, which enables anyone to handle the most difficult cases of mutual stockholdings, by using only simple arithmetic processes.