Showing papers on "Earnings published in 1977"

Investment performance of common stocks in relation to their price-earnings ratios: a test of the efficient market hypothesis

Abstract: IN AN EFFICIENT CAPITAL MARKET, security prices fully reflect available information in a rapid and unbiased fashion and thus provide unbiased estimates of the underlying values. While there is substantial empirical evidence supporting the efficient market hypothesis,' many still question its validity. One such group believes that price-earnings (P/E) ratios are indicators of the future investment performance of a security. Proponents of this price-ratio hypothesis claim that low P/E securities will tend to outperform high P/E stocks.2 In short, prices of securities are biased, and the P/E ratio is an indicator of this bias.3 A finding that returns on stocks with low P/E ratios tends to be larger than warranted by the underlying risks, even after adjusting for any additional search and transactions costs, and differential taxes, would be inconsistent with the efficient market hypothesis.4 The purpose of this paper is to determine empirically whether the investment performance of common stocks is related to their P/E ratios. In Section II data, sample, and estimation procedures are outlined. Empirical results are discussed in Section III, and conclusions and implications are given in Section IV.

Distributive Justice and Earned Income

Abstract: This is an empirical exploration of the normative criteria for just distributions of earned income. The results indicate that the fairness of earnings is judged relative to a set of criteria which includes (but perhaps is not limited to) formal educational attainment, occupational attainment, sex, marital status and knowledge of family earnings. That is, both merit and need factors combine to produce judgments of fairness and unfairness. These criteria for just earnings appear to be held consensually and are largely independent of the raters' observable demographic attributes.

Women and the economics of family migration

Abstract: N OTWITHSTANDING this early statement by Ravenstein (1885, p. 196), the separate study of geographic mobility among women has been virtually ignored by students of migration.' The reason is obvious: women are assumed to migrate because their husbands do.2 While it is undoubtedly true that most migration involves family units (the migration of husband and wife occurring jointly), the possibility that the wife's welfare is considered in the family's decision to migrate should not be ruled out. It is at least desirable to test the hypothesis that the wife's employment is considered in the migration decision and to examine the effect of that decision on women's earnings. In this paper an economic model is developed to explain the family's decision to migrate and the effect of migration on the labor market earnings of men and women. It is based on the tenet that family utility, defined operationally as the husband's and wife's labor market earnings and leisure, is maximized. The model suggests that the wife's labor market involvement is a significant consideration in a (husband-wife) family's decision to migrate. The data from the National Longitudinal Surveys (NLS) are well suited for empirical testing of this model.3 The surveys provide the opportunity to examine the change in labor market earnings of families and individuals over a five-year period. Availability of data on migratory status as well as on other personal characteristics of women and their families permits the direct testing of the model. In section I a family utility maximization model is used to derive implications with regard to the probability of migration by the family and the effect of migration on individual and family earnings. These implications are tested in section II using multiple regression analysis and the NLS data for white women who were 35 to 49 years of age in 1972. The implications of the empirical estimates for the economic welfare of women and for interpreting the observed earnings distribution are discussed in section III.

Social Security and Retirement Decisions

Abstract: One of the most striking features of the postwar U.S. economy has been the rapid decrease in the labor force participation of the elderly at a time when the health of this group has been improving. In spite of this, previous research, based on retrospective interviews with the retired population, usually concludes that poor health accounts for the overwhelming majority of retirements. This paper suggests that nothing could be further from the truth. Using data from the Panel Study of Income Dynamics, we follow a cohort of white married males through their sixties to estimate a model of retirement behavior. Using several definitions of retirement suggested in the literature, we find that the two key policy parameters of the social security system—the income guarantee and the implicit tax on earnings—exert an enormous influence on retirement decisions. For example, our results suggest that a decrease in the implicit tax rate on earnings from one-half to one-third would reduce the annual probability of retirement by about fifty percent! Applying the coefficient estimates to time series data on the labor force participation of the elderly implies that the social security system has been the major factor in the explosion in earlier retirement.

The Time-Series Behavior of Quarterly Earnings: Preliminary Evidence

Abstract: The purpose of this paper is to present some preliminary evidence on the time-series behavior of quarterly earnings numbers and to examine some implications of this evidence for accounting research, particularly the relationship between earnings numbers and security prices. Box and Jenkins' [1970] analysis for the identification of autoregressive integrated moving average (ARIMA) time-series models is applied to the quarterly earnings available for common stockholders series for a sample of ninety-four large firms listed on the New York Stock Exchange. The analysis suggests that there are two components to the quarterly earnings process: (1) a four-period seasonal component and (2) an adjacent quarter component which describes the seasonally adjusted series. Of several candidate models for this dual characterization that are examined, either a stationary first-order autoregressive or a nonstationary first-order moving average process (both are specified at a later point) adequately describes the sample. Consequently, it is evident that the quarterly earnings process is not a Martingale (submartingale or supermartingale)' and that, apart from the effects of seasonality, successive changes in quarterly earnings are not independent.

Education, Occupation, and Earnings: Achievement in the Early Career

Abstract: (1977). Education, Occupation, and Earnings: Achievement in the Early Career. The Journal of Higher Education: Vol. 48, No. 6, pp. 718-720.

Sons of Immigrants: Are They at an Earnings Disadvantage?

Abstract: In 1970, 9.6 million persons in the United States, or 4.6 percent of the population, were foreign born. Another 24 million persons, or 11.5 percent of the population, were of foreign parentage, that is, either one or both parents were foreign born. The earnings and labor market behavior of the foreign stock (foreign born and foreign parentage) have not been the subject of much systematic research despite the rise in public interest in ethnicity and discrimination. This paper, which focuses on the foreign parentage, is drawn from a larger study of the earnings of the foreign stock which is intended to remedy this situation (see Chiswick). This paper examines the effect of foreign parentage on the earnings of native born white men age 25 to 64 who worked in 1969. It is restricted to whites as they comprise 97 percent of the persons of foreign parentage and to men because the problems of estimating labor market experience for women require that they be dealt with separately. In addition, persons born in Puerto Rico or an outlying area of the United States are excluded from the data.

The Adjustment of Stock Prices to Announcements of Unanticipated Changes in Quarterly Earnings

Abstract: The vast majority of studies relating published accounting statement data with stock price behavior suggest that the data are fully impounded in stock prices prior to or almost instantaneously at time of announcement. For example, in a recent article, Benston states that: "The extant statistical studies that related published accounting statement data with stock prices all lead to the conclusion that the data either are not useful or have been fully impounded in stock prices before they are published" [1973, p. 153]. The present study presents evidence that, over the period studied, the information contained in quarterly earnings was not fully impounded into stock prices at the time of announcement. The adjustment of common stock prices to the announcement of unanticipated changes in quarterly earnings (and to other announcements as well) is an empirical question. The purpose of this present study is to reexamine the adjustment of stock prices to announcements of presumed unanticipated changes in quarterly earnings. We attempt to avoid many of the potential empirical problems of earlier studies,

The Effect of Unemployment Insurance on the Duration of Unemployment and Subsequent Earnings

Abstract: Discusses the effect of unemployment insurance on the duration of subsequent earnings and unemployment. Empirical results of a study in Pennsylvania; Average rate of unemployment insurance; Statistics on post-unemployment earnings in Arizona. (Abstract copyright EBSCO.)

Effects of Unemployment Insurance Entitlement on Duration and Job Search Outcome

Abstract: Examination of the effects of unemployment insurance entitlement on duration and job search outcome. Measurement of unemployment duration; Effect on subsequent earnings; Impact of eligibility screening on duration and subsequent earnings. (Abstract copyright EBSCO.)

Occupational Licensing and the Inter-State Mobility of Professionals

Abstract: This paper attempts to measure the effect of occupational licensing, restrictions on reciprocity, location specific investment in reputation and earnings on the interstate mobility of professionals. While 34 professional occupations are analyzed, special attention is focused on the legal profession. The comparatively low interstate mobility rate of lawyers may be due to state licensing and restrictions on reciprocity or to the investments made by lawyers to develop local reputations or to the investments made by lawyers in state specific law. Tests are conducted to distinguish among these three hypotheses.

Inequality: Earnings vs. Human Wealth

Abstract: The objective of this paper is to draw some inferences concerning the relative magnitudes of inequality in annual earnings, the traditional measure, and in human wealth, the measure suggested by recent literature. A second objective is to assess the relative importance of schooling, measured ability and to a limited extent family background in earnings and human wealth inequality as well as the overall contribution of these variables combined. A unique feature of this study is the estimation of earnings and human wealth and their distribution for a group of men for which several age-earnings data points are available over almost an entire lifetime (ages eighteen to fifty-four).(This abstract was borrowed from another version of this item.)

Standardized unexpected earnings—a progress report

Abstract: FINANCE THEORY IS GROUNDED on the assumption that security prices adjust to new information as it becomes available. This adjustment should be very quick in a perfect capital market where trading is frictionless and information flows freely to all participants and all participants value it equally. Otherwise there would be opportunities for riskless hedging. But in the real-world where there are trading costs, and delays in transmission and differences in interpretation and evaluation of information, the possibility of riskless hedging is less certain and the process of adjustment to new information less clear-cut. In this paper we will attempt to measure the informational content of quarterly earnings reports and the effects of this information on stock prices.' New information can be described as unexpected information. If everyone expects a company to report $1.00 per share earnings in the next quarter and it actually reports the $1.00, little new information has been added. It might reduce the uncertainty surrounding future earnings but no major revision of expectations would be called for. On the other hand, if earnings of $.50 or $2.00 were reported this would be unexpected information and clearly would call for a revision of probability beliefs about the future. We wish to test the hypothesis that this unexpected information and the accompanying revision of probability beliefs will have a measurable effect on stock prices. We postulate for the purpose of testing that extrapolated earnings in the twenty-first quarter based on the seasonally adjusted trend of earnings in the preceeding 20 quarters can be used as a satisfactory proxy for expected earnings.2 Then, "unexpected earnings" in the twenty-first quarter are the actual reported earnings in that quarter minus the extrapolated earnings. The "unexpected earnings" so determined are deflated by the standard error of estimate of the trend fitting equation to get "Standardized Unexpected Earnings" (SUE) which we use as a measure of the informational content of the quarterly earnings.3

What Have We Learned from Empirical Studies of Unemployment Insurance

Abstract: Focuses on lessons learned from studies of unemployment insurance (UI). Theoretical implications of UI; Information on experience-rated UI; Effect of UI on subsequent earnings; Examination of the duration of UI; Measurement of unemployment duration. (Abstract copyright EBSCO.)

On the theory of conglomerate mergers

Abstract: MERGERS CAN BE EXCITING, however their effects on stockholders remain unclear. Mandelker [18] found that the average firm that acquired another firm in the 1940's and 1950's did not benefit its stockholders. Given bleak findings such as this, it is not surprising to find theoretical controversy over what constitutes a good merger. From a theoretical standpoint, a number of benefits are obvious, though they may be difficult to estimate in practice. For example, the profitability of a merger is enhanced by positive synergistic effects, i.e. real gains due to the effective integration of productive facilities, distribution networks, etc. Tax loss carryforwards can also be a source of merger benefits. Another benefit is possible if, in an inefficient market, one large firm has better access to external sources of funds than do two smaller firms. However, if these and other real factors are swept aside, and if the securities markets are efficient, are there any purely financial benefits to merging? The answers to this question constitute the theory of conglomerate mergers and are the subject of this paper. The first major result of this theory concerns diversification per se. Is it worthwhile to merge two firms with dissimilar earnings streams to get a smoother path of earnings over time? If both firms are traded in a single, efficient capital market and if bankruptcy is not possible, Alberts [2], Myers [23], Levy and Sarnat [15], Adler and Dumas [1], and others have argued persuasively that investors can obtain the same diversification themselves by purchasing appropriate amounts of the unmerged firms. Thus a conglomerate merger will not alter the total value of the combining firms.' If no premium is paid to the shareholders of the acquired firm then the stock prices of both firms will remain unchanged. If there is a premium, the stockholders of the acquired firm gain what those of the acquiring firm lose. Assuming that corporate bankruptcy is possible, Levy and Sarnat [15], and Lewellen [16] have argued that if a merger reduces the probability that one of the firms would default on its debt, then the value of the debt will increase and the

Regulation and Labor Earnings

Abstract: This paper investigates the contention that workers in regulated industries receive economic rents as a consequence of the regulation. We argue that increases in wage levels due to entry regulation may be offset by employment stability guaranteed by this regulation and by increased reluctance of management to grant increases due to the type of profit regulation imposed. An empirical analysis compares earnings in seven occupations in fourteen regulated industries with earnings in other manufacturing industries. Earnings in the electric utility industry are also analyzed. Both studies are supportive of our argument.

Financial Aspects of the Private Pension System

Abstract: Recent changes in federal law regulating the vesting, funding, and insurance provisions of private pension contracts have stimulated an increased awareness of the pension industry's role as an accumulator of private wealth and as a financial intermediary. This note represents an initial attempt to analyze several financial aspects of the private pension system. The basic argument is that vesting establishes a claim on a firm's earnings by assigning property rights to pension recipients. In turn, this claim is reflected in the market valuation of firms with unfunded vested components of their pension plans. The first section of the analysis develops the correspondence between pension property rights and the corporate finance implications of a pension program. The relationships among vesting, funding, and tax treatments are identified. A statistical analysis of the impact on share valuation of unfunded obligations follows. The final section is a summary.

Factor Mobility, Regional Development, and the Distribution of Income

Abstract: A three-factor model of a small country or region is used to analyze the general equilibrium consequences of three frequently advocated regional development policies--investment subsidies, migration incentives, and educational expenditures. The analysis focuses on policy-induced changes in absolute and relative factor earnings. The results link changes in the distribution of income to the degree of complementarity and substitutability among factors of production and to the pricing scheme adopted by educational institutions. Programs intended to aid lagging regions may produce perverse results, particularly if the cost of education is the same to all individuals regardless of ability.

Schooling, Ability, and Earnings: Cross-Sectional Findings 8 to 14 Years after High School Graduation

Abstract: This paper extends and modifies the Sewell and Hauser (1975) analysis of annual earnings cross-sections of male Wisconsin high school graduates through the 14th year following high school graduation. In the first part of the analysis, we estimate a simple recursive model of earnings attainment (including social background, mental ability, and post-secondary educational attainment) for annual earnings cross-sections for the years 1965 to 1971 (8 to 14 years after high school). We find that the degree and manner in which the variables in our model influence earnings vary across annual cross-sections. In the second part of the analysis, we shift earnings profiles to allow for the assessment of the returns to schooling net of work experience. The results of the "experience controlled" analysis suggest that (1) the economic returns to post-secondary schooling are approximately 10 percent per year if a bachelor's degree is obtained and approximately 6 percent per year if a bachelor's degree is not obtained, and (2) the economic returns to post-secondary schooling are quite constant across experience levels. Bias in the estimation of economic returns to schooling and interactions between the effects of ability and other variables on earnings are also examined.

Health, Family Structure, and Labor Supply

Abstract: I consider the health, family structure, and labor supply inter-relationships at both a theoretical and empirical level. The paper is organized in the following way. SectionI introduces the material. In Section II, a theoretical model of family time allocation among market, home, and health activities is developed. The concept of a family health maintenance function is formalized to generate qualitative predictions of the effect of wages, health status, health care efficiency, and property income on the labor supply of husband and wife. In Section III, data from the older male portion of the National Longitudinal Surveys are used to estimate labor supply functions for married and single men with special attention to differences in poor health responses. A simultaneous model of male labor supply and other family income (chiefly transfer income and the earnings of the wife) is then estimated to determine whether variations in the work hours of males, largely due to health differences, induce any substantial changes in income producing activities by other family members. Finally, in Section IV the detailed time budget data on both males and females from the Productive Americans Survey are used to estimate more precisely the effect of health on total family time allocations. These data provide estimates of the impact of poor health on home production time as well as market time for both husband and wife.

Dividend Changes, Earnings Reports, And Share Prices: Some Australian Findings:

Abstract: Australian companies typically announce profit figures and dividend payouts at the same time. During the 60's and early 70's, profit and dividend changes were positively correlated, and were associated with significant share price changes, after abstracting from market effects. When profit and dividend reports gave conflicting signals, share prices tended to decline.

Response Error in Earnings Functions for Nonblack Males

Abstract: Biases due to measurement errors in an earnings function for nonblack males are assessed by estimating unobserved variable models with data from the Income Supplement Reinterview program of the March 1973 Current Population Survey and from the remeasurement program of the 1973 Occupational Changes in a Generation-II survey. We find that reports of social origins, educational and occupational attainments, labor supply, and earnings of nonblack males are subject to primarily random response errors. Logarithmic earnings is one of the most accurately measured indicators of socioeconomic success. Further, retrospective reports of status variables are as reliable as contemporaneous reports. When measurement errors are ignored for nonblacks, the total economic return to schooling is underestimated by about 16% and the effects of some background variables are underestimated by as much as 15%. The total effects offirst and current job status are underestimated by about 20% when measurement errors are ignored, as a...

Concentration and Labor Earnings in Manufacturing and Utilities

Abstract: Examination of the role of market power in the determination of wage level in manufacturing and utilities. Theory of wage determination; Mathematical model of wage determination; Methodology; Results and discussion; Conclusion. (Abstract copyright EBSCO.)

Demographic Effects on the Equity of Social Security Benefits

Abstract: This paper examines the impact on social security benefits and taxes of (a) differential mortality by race, income, education, sex, and marital status; (b) differing ages of entry into the labour force; and (c) different lifetime earnings profiles.