FINANCE Corporate financial policy and R and D Management

where Dtis the aggregate dividend paid out in year tand Etis the total
earnings available for common shareholders in year t. This descriptor is
computed using the past five years of data on dividends and earnings.

2.VCAP: Variability in capital structure. This descriptor is measured as
follows:

where Nt–1is the number of shares outstanding at the end of time t– 1;
Pt–1is the price per share at the end of time t– 1; LDt–1is the book value of
long-term debt at the end of time period t– 1; PEt–1is the book value of
preferred equity at the end of time period t– 1; and CET, LDT, and PETare
the book values of common equity, long-term debt, and preferred equity as
of the most recent fiscal year.

3.AGRO: Growth rate in total assets. To compute this descriptor, the fol-
lowing regression is run:

TAit= a+ bt+ ξit

where TAitis the total assets of the company as of the end of year t, and the
regression is run for the period t= 1,..., 5. AGRO is computed as follows:

where the denominator average is computed over all the data used in the
regression.

4.EGRO: Earnings growth rate over past five years. First, the following
regression is run:

EPSt= a+ bt+ ξt

where EPStis the earnings per share for year t. This regression is run for
the period t= 1,..., 5. EGRO is computed as follows:

EGRO

EPS

=

=

∑

b

T

t

t

T

1

1

AGRO=

=

∑

b

T

TAit

t

T

1

1

VCAP=

−

()−+−+−

++

−−−−

=

∑

1

T 1 2 111 1

NNPLDLDPEPE

CE LD PE

ttt t t tt

t

T

TTT

||| || |

Appendix 8.B 231