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Significant attention has been devoted to agency theory in the financial literature. Dating back to the seminal contribution of Jensen and Meckling (1976), financial economists have examined agency relationships mainly in the context of shareholders versus managers, and shareholders versus creditors. The purpose of this essay is to document the existence of additional agency problems created as a result of the adoption of the Bankruptcy Reform Act of 1978. An introduction to the bankruptcy environment and the main features of the Bankruptcy Reform Act of 1978 (hereafter referred to as the Act) are followed by description of the agency problems arising out of the 1978 Act.

This study identified four performance measures often employed in corporate analysis and examined their relationship with the firm's expenditures in research and development over different periods. These measures reflect both the profitability of the firm and the market value of the firm's total capitalization. This inquiry is motivated by numerous attempts made in the literature to define an ideal measure of corporate financial performance. Repeated surveys and several financial studies [Mechlin and Berg (1980), Watts (1986), Dubofsky and Varadarajan (1987), and Obi (1994)] have revealed that in spite of their empirical shortcomings, the most frequently employed measures are those based on the firm's profitability, essentially, return on equity (ROE), profit margin on sales and return on total capitalization. These measures are handicapped by the fact that they reflect only the historical pattern of the accounting data generating them. In this study, we contend that a reliable measure of performance should reflect the market's perception of the riskiness and timing of the expected returns on the firm's current investments.

Surveys African stock markets to find out if they are as efficient as developed markets, and follow the same “turn‐of‐the‐year” pattern as other markets. Compares Ghana, Zimbabwe and Nigeria, and focuses on the period between 1985 and 1995. Describes the environment of each, and computes monthly stock returns, testing them for seasonality. Finds evidence of the January effect only in Ghana, and there it is small. Notes that this may be the result of spillover from London.

Criticizes the attitude of separatism used in evaluating management performance. Asserts that looking at narrow functional areas does not provide a holistic picture of an organization, for example, production may reduce its costs by using inferior quality materials but marketing and sales may not be able to sell the product so their performance declines. Suggests that some organizations suffer from conflict between functional areas because they are evaluated on the outcomes from activities they control, affecting overall organizational performance. Indicates that asset investment decisions should be based on the interdependent relationship between accounting, finance and marketing departments, and that this can best be achieved if a cross‐functional team makes the asset investment decisions. Points out the inherent difficulties in evaluating intangible assets. Focuses on advertising and research and development (R&D) and how investments could be evaluated using functional and cross‐functional teams, based on financial data (on 126 firms) accessed from the Compustat PC Plus database. Takes a look at economic value‐added, which questions the differences between the accounting and economic models of a firm. Uses regression analysis to examine the impact of advertising, R&D and other explanatory variables on market value, accounting profitability and sales. Finds support for using cross‐functional teams in evaluating intangible asset investments. Recommends areas for further research.

Corporate finance is under attack. Commentators mention that corporate managers have enriched themselves and shareholders, and in the process have failed to consider the interests of all stakeholders (Hennessy, 1989, Alkhafaji, 1989, Newton, 1989, Dunfee, 1989, Steidlmeier, 1989, Jones and Hunt, 1991). They cite the active corporate control market that produced hostile takeovers, leveraged buyouts, and corporate restructuring activity, all presumably causing a reduction in social welfare. This view is now beginning to permeate itself into the financial education debate. For example, Hawley (1991) suggests that financial educators are abdicating their responsibility of helping prepare corporate managers to recognize and deal with business ethics‐social responsibility effectively. Hawley proposes that the shareholder wealth maximization model for corporate management rationalizes the commission of unethical or socially irresponsible actions. Because of this ongoing criticism being levied against the practice of corporate finance, financial educators are now moving to incorporate ethics in the finance curricula. Although this move may be welcomed, we suggest that financial educators proceed with caution.