Showing papers on "Earnings published in 1980"

Quarterly Dividend and Earnings Announcements and Stockholders' Returns: An Empirical Analysis

Abstract: ASSUMING THAT MANAGERS POSSESS inside information about their firms' future prospects, they may use various signaling devices to convey this information to the public. Two of the most important signaling devices available are earnings and dividend figures. The "information content of dividends" hypothesis asserts that managers use cash dividend announcements to signal changes in their expectations about future prospects of the firm.' Since dividend decisions are almost solely at management's discretion,2 announcements of dividend changes should provide less ambiguous information signals than earnings numbers. Furthermore, given the discrete nature of dividend adjustments, signals transmitted by these changes may even provide information beyond that conveyed by the corresponding earnings numbers. If dividends, then, do convey useful information, in an efficient capital market this will be reflected in stock price changes immediately following a public announcement. It is, therefore, an empirical question whether dividend information content is useful to capital market participants. A major difficulty in assessing dividend information content lies in the fact that dividend and earnings announcements often are closely synchronized. Thus, one has first to adequately identify information reflected in both earnings and dividends and then consider the remainder of the information conveyed by dividend announcements.

Experience, Performance, and Earnings

Abstract: This study provides direct evidence concerning the relationship between experience and performance among managerial and professional employees doing similar work in two major U. S. corporations. The facts presented indicate that while, within grade levels, there is a strong positive association between experience and relative earnings, there is either no association or a negative association between experience and relative rated performance. If we are correct that the performance ratings given to managerial and professional employees in any grade level adequately reflect those employees' relative productivity in the year of assessment, the results imply that the human capital on-the-job training model cannot explain a substantial part of the observed return to labor market experience.

Wages, earnings and hours of first, second, and third generation american males

Abstract: Analysis of 1970 census data for eight ethnic groups indicates that, other things equal, recent immigrants generally receive lower wages and earnings than second generation workers, but second generation workers receive higher wages and earnings than do third Recent immigrants and third generation men work significantly fewer hours per year than do earlier immigrants and second generation men These findings are consistent with the hypothesis that increases in U S specific human capital over generations are offset by decreases in motivation The higher motivation of immigrants appears to reflect greater preference for money over family ties, leisure, and easy work as compared with non-immigrants immigrants

The Covariance Structure of Earnings and the On the Job Training Hypothesis

Abstract: The fine structure of earnings is defined by a theoretically meaningful decomposition of the covariance matrix of earnings (or log earnings) time series A three-element variance components model is proposed for analyzing earnings of young workers These components are interpreted as the effects of differential on-the-job training (OJT) and differential economic ability Several properties of these components and relationships between them are deduced from the OJT model Background noise generated by a nonstationary first-order autoregressive process, with heteroscedastic innovations and time-varying AR parameters is also assumed present in observed earnings ML estimates are obtained for all parameters of the model for a sample of Swedish males The results are consistent with the view that the OJT mechanism is an empirically significant phenomenon in determining individual earnings profiles

The Effect of Americanization on Earnings: Some Evidence for Women

Abstract: In a recent contribution to this Journal, Barry Chiswick (1978) coInpared the earnings experiences of foreign-born and native-born white adult males. He es imated that the actual annual earnings of foreign-born males are 1 percent lower than native-born male earnings, but the earnings differential reverses to 3 percent in favor of the foreign born when other variables (schooling, labor market experielce, area of residence, weeks worked, and years since migration) are held constant. Other important findings included evidence that the partial effect of education on earnings is relatively lower for foreignborn mnales, but their postinimigration experience-earnings profile is relatively steeper, meaning a sharper rise of earnings with time in the United States for foreign-born than for native-born males. The purpose of this note is to present some estimates of the relative earnings of foreign-born females, for comparison with the more detailed results of Chiswick. Chiswick restricted his analysis to males because of "the problem of estimating labor market experience for women in the data under study" (1978, p. 898, n. 2), which came from the 1970 Cemsus of Population (U.S. Bureau of the Census 1972). Indeed, the weaknesses of "potential" work experience (measured by Chiswick and others as age schooling 5) as a proxy for actual labor market experience have been verified in recent studies of female wages and employment (Blinder 1976; Rosenzweig 1976; Rosevizweig and Morgani 1976; Jones and Long 1979). However, the literature does suggest some techniques that allow one to approximate the wage-

On the "q" Theory of Investment.

Abstract: The neoclassical theory of corporate investment is based on the assumption that the management seeks to maximize the present net worth of the company, the market value of the outstanding common shares. An investment project should be undertaken if and only if it increased the value of the shares. The securities markets appraise the project, its expected contributions to the future earnings of the company and its risks. If the value of the project as appraised by investors exceeds the cost, then the company's shares will appreciate to the benefit of existing stockholders. That is, the market will value the project more than the cash used to pay for it. If new debt or equity securities are issued to raise the cash, the prospectus leads to an increase of share prices. [Tobin and Brainard, p. 242]

Home Production--A Forgotten Industry

Abstract: RECENT years have witnessed an awakened interest in the economic activity taking place outside the market, and in particular the activity taking place at home. This interest spurred by the new consumption theory of Becker and Lancaster and by the estimates of the Measure of Economic Welfare of Nordhaus and Tobin (1973) has taken two distinct forms: an increased number of studies on the economics of household behavior and a renewed effort to place a money value on the household home activity. However, while the major thrust of the first type of studies is in the field of microeconomics, the estimates of home production refer, in general, to the economy as a whole. These estimates, crude as they are, indicate that home production is far from being a negligible part of the economic activity. Even in an advanced economy such as the United States the value added generated by the home sector seems to account for over one third of the output produced at the market (Hawrylyshyn, 1976). In less advanced economies this fraction is presumably even higher. It seems, therefore, of interest to repeat the question in a microeconomic context and examine the role of home production at the household level, rather than in the aggregate. In contrast to past studies which have focused on the labor inputs going into home production (Sirageldin, 1969; Walker and Gauger, 1973), the emphasis in this paper is on the measurement of productivity and total home output. The questions I try to answer are: What are the factors determining the wife's productivity at home? What is the value of home production and how does it compare with the family's money income? How does the value of home production differ among families with different socioeconomic backgrounds? How is it affected by the wife's labor force participation and by the existence of young children? How does it change over the family's life cycle? It is found that the value of home production associated with the work at home of U.S. wives in 1973 exceeded 60% of the family's money income before taxes, and 70% of the family's money income after taxes. It was lower for families with no preschool children and almost equal to the family's money income after taxes when the family had young children. Home productivity increases with education but at a lower rate than market productivity. Home production is only slightly affected by the wife's employment in the market when the family does not have young children. However, when the family has young children, the loss of home output when the wife joins the labor force equals almost her increased money earnings. Finally, home production tends to peak at a younger age (35-39) than money income and drops significantly thereafter. The paper opens with a discussion of the estimation of household productivity-the model, the data and the estimates. The role home output plays in comparison with other material resources is discussed in section III. The paper closes with some concluding remarks.

A multivariate-analysis of annual earnings forecasts generated from quarterly forecasts of financial analysts and univariate time-series models

Abstract: The Financial Accounting Standards Board [1977] recently emphasized the importance of forecasted accounting earnings in the formulation of investment decisions. Empirical investigations into various aspects of the investment decision process, such as cost of capital, firm valuation, and the relationship between earnings and stock prices, have utilized forecasted accounting earnings extensively as a measure of earnings expectations. Thus, both policy boards and empirical research support the importance of forecasted accounting earnings. Current sources of these forecasts which are widely available are univariate time-series models and financial analysts. In the future, another may be management forecasts, if the SEC and FASB should desire to make those more widely available. Analysts' and managements' forecasts may be characterized as representing comprehensive models, in that input to these models can incorporate numerous variables both endogenous and exogenous to the firm. In contrast, the univariate timeseries models incorporate a single variable, past earnings. Both comprehensive and univariate models have advantages and disadvantages. Currently, a major question is the value of a comprehensive model relative to a univariate model. Another question is whether a univariate model should be identified individually for each firm or if a generally identified or premier model would provide forecasts that are

The Earnings of White and Coloured Male Immigrants in Britain

Abstract: According to the 1971 Census of Great Britain, 1.2 million males in Britain (4*5 per cent of all males) were born outside the British Isles.' About half of these immigrants were born in the New Commonwealth countries in Asia, Africa and the Caribbean, three-tenths were born in Europe (including the USSR), and another one-tenth are from the Old Commonwealth countries and the United States. As time passes, the children of the coloured immigrants in Britain will increase the proportion of coloured in the native-born population.2 There is a paucity of literature on the economic progess in Britain of white and coloured immigrants.3 This paper examines the earnings of adult white and coloured men living in Britain in 1972 who were born outside the British Isles. It finds that, although white immigrants have about the same earnings as native-born men, the earnings of coloured immigrants are about 25 per cent lower, other things the same.

The Impact of International Accounting Differences from a Security-Analysis Perspective: Some European Evidence

Abstract: Publisher Summary This chapter discusses the impact of international accounting differences from a security analysis perspective. In the European context, a candidate with some potential for this task can be found in the standardized method of analysis and presentation of company accounts developed by the European Federation of Financial Analysts Societies. This European Method of financial analysis is the outcome of a project for the special purpose of overcoming the problems of making international comparisons of company performance. The essential aim of the European Method is to arrive at a figure that can be used as a basis for earnings forecasts and for the calculation of ratios. As a consequence, several adjustments are made to a company's reported profits in an attempt to eliminate subjective and nonrecurring elements, and so reveal a relatively objective measure of current profits attributable to ordinary shareholders on a standardized basis.

Reconsidering the Work Disincentive Effects of Social Security

Abstract: This paper shows that, contrary to commonly held views, the provisions of the social security law actually provide strong work incentives for older men. The reason is that, for most workers, higher current earnings lead to higher future social security benefits. These incentives have been particularly strong for workers under 65 years of age and, although they will be reduced somewhat when the 1977 amendments to the social security law become fully effective, they will remain substantial. The findings raise serious questions about recent econometric work attributing the decline in labor force participation rates of older men to the social security system.

The labor market effects of immigration

Abstract: This paper is a theoretical examination of the probable effects on the U.S. labor market of a continued high rate of illegal immigration. The author constructs a model to estimate the impact each additional immigrant has on the employment of the domestic population on GNP and on the distribution of income. The model suggests that in non-recessionary periods the most important effect of a high rate of immigration is on the wage rates of low-skilled labor rather than on the employment of low-skilled native workers but immigration also increases the earnings of high-skilled workers and the owners of capital. In the very long run the author concludes this redistribution of income will be offset to some extent by increases in the supplies of skilled labor and capital. (authors)

Patterns of Money Management within Marriage

Abstract: Much social and economic policy is based upon units such as the tax unit or the household, and much of it makes certain assumptions about flows of resources within these units. This article focuses on the control and allocation of financial resources within households, drawing on work done in the past and on original material taken from a study of the problems of a group of women whose marriages had broken down because of violence. Concentrating on the household type which is composed of a married couple and their dependent children, the article outlines three broad types of allocation system – the whole wage system, the allowance system and the pooling system. It is suggested that there are links between the system of allocation within the family, the stage in the life cycle which the family has reached, the income level of the household, and the occupational, regional and ethnic culture within which the household is located. The article concludes by suggesting that a better knowledge of intra-household money flows would be relevant to discussion concerned with the distribution of poverty, the allocation of welfare benefits, and the contribution made by married women's earnings to family living standards, and that it would also contribute to a better understanding of marital tension and marital breakdown.

Financial analysts' forecasts of earnings: Their value to investors

Abstract: This paper attempts to determine whether financial analysts' forecasts of earnings are useful to investors. This is accomplished by devising and evaluating the performance of trading rules under which transactions are triggered by revisions in earnings forecasts. The main finding is that an investor who acts upon the publicly available revisions of earnings forecasts can consistently outperform a buy-and-hold policy; in fact, such an investor could more than double his return. The results are inconsistent with the efficient market-hypothesis and indicate that the market reacts gradually rather than instantaneously to new information.

The Measurement of Permanent Income and Its Application to Savings Behavior

Abstract: A unique feature of this study is its use of panel data to construct two measures of permanent income: An earnings function with unobserved individual differences suggests one measure, while a weighted average of past incomes yields another. These measures reject the accepted theories of savings behavior and suggest a nonlinear relationship between savings and permanent income. A new function incorporating this nonlinearity is successfully applied to the data for Indian farm households. The occurrence of this nonlinearity suggests that income redistribution policies in the less developed countries are likely to result in a reduced supply of household savings.

Reconsidering the Work Disincentive Effects of Social Security

Abstract: This paper shows that, contrary to commonly held views , the provisions of the social security law actually provide strong work incentives for older men. The reason is that , for most workers, higher current earnings lead to higher future social security benefits. These incentives have been particularly strong for workers under 65 of age and, although they will be reduced somewhat when the 1977 amendments to the social security law become fully effective, they will remain substantial. The findings raise serious questions about recent econometric work attributing the decline in labor force participation rates of older men to the social security system.

Effects of shareholder information on corporate decisions and capital market equilibrium

Abstract: This paper examines the effect that imperfectly informed capital market agents have on the equilibrium paths of output, investment, and asset prices of value maximizing firms. Though information is imperfect, rational expectations is imposed as an equilibrium condition. It is found that both asset prices and corporate decisions are simultaneously affected in such a way that the efficiency-optimality relationship between them is pre- served. The effect of a fuller information structure is to move the economy from one efficient markets equilibrium to another. elaborated. Extant beliefs regarding accounting information are crystallized at two polar extremes. Policy-making bodies like the SEC and the FASB and most prac- titioners believe that investors are naive in processing information, and are principally concerned with the earnings per share figure as reported by accoun- tants. Investor decision rules are invariant to the rules for computing income, and therefore if the "right" or "proper" measure of income were not adopted, investors would be misled. In recent years stock price researchers have rapidly accumulated evidence against this naive investor hypothesis and in favor of the efficient markets hypothesis. For example, Kaplan and Roll (12) demonstrated that firms switching from the deferral method to the flow-through method for investment credit and firms switching from accelerated to straight-line deprecia- tion, in each case increasing their reported income, did not experience abnormal price increases. Sunder (23) found that firms switching from the FIFO to the LIFO method of inventory valuation, thereby decreasing their reported income, did not suffer in stock price performance. These findings raise a serious question. Do accounting statements have any informational impact on security prices at all? Several studies tested and rejected the null hypothesis that the periodic financial statements issued by corporations have no information content for capital market agents. Ball and Brown (1) tested for information content of the annual earnings report and found that foreknowledge of the earnings number could be used to generate excess returns. Brown and Kennelly (5) replicated the

The Transition to Adulthood as a Career Contingency.

Abstract: Individuals in American society tend to agree that it is normatively appropriate behavior to order the events marking the transition to adulthood so that formal schooling is completed first, and so that both school completion and beginning of first job occur prior to marriage. This paper reports on the testing of the hypothesis that men who order their transition events in a nonnormative fashion experience reduced occupational status and earnings returns in their later careers. The study is based on the responses of 18,370 ever-married white males aged 20 to 65, who were employed in the experienced civilian labor force, and were interviewed in the 1973 Occupational Changes in a Generation II survey. While no difference in occupational attainments are observed, men who experience a disorderly transition to adulthood also experience lower earnings returns to their education, as well as substantial deficits in their total earnings.

Profitability, concentration and the interindustry variation in wages

Abstract: THIS paper explores empirically the hypothesis that product market imperfections affect the earnings of labor in U.S. manufacturing industries. To the extent that labor shares in the excess return due to product market power, any policies designed to reduce this power may restrain or reduce wages in the affected industry. Thus workers may oppose antitrust action aimed at their own industry. Workers may oppose increased import competition that restrains market power not only because of potential unemployment but also because this increased competition indirectly reduces future wages. In addition, measures of the social loss due to product market power are understated if some portion of costs are actually return to market power. The transfer from consumers to producers, including labor as a factor of production, is also understated. Past results attempting to isolate empirically the relation between product market power, usually represented by product market concentration, and labor earnings have been mixed. This paper argues and demonstrates that economic profitability is a superior measure to concentration in summarizing the relative extent of product market power across industries. After developing a model of the division of the total excess return available to an industry between labor and capital, the paper presents empirical results that support the hypothesis that excess return or economic profitability is superior to product market concentration in explaining the interindustry variation in wages. The results indicate that labor receives 7% to 14% of the total excess return. For empirical analysis other determinants of interindustry wage variation must be controlled. The first section of the paper briefly discusses certain relevant labor force characteristics. The second section examines the relationship between wages and product market power. The third section discusses the data and presents empirical results. If possible, variables are measured as four-year averages over 1967-1970, to avoid single-year disturbances in the data and to approach long-run equilibrium observations. The final section presents concluding comments.

The Magic in Earnings: Economic Earnings versus Accounting Earnings

Abstract: (1980). The Magic in Earnings: Economic Earnings versus Accounting Earnings. Financial Analysts Journal: Vol. 36, No. 6, pp. 19-24.

Immigrant earnings: Cuban and Mexican immigrants in the United States.

Abstract: This study examines the determinants of earnings among two groups of recent immigrants-Cubans and Mexicans-interviewed at the moment of arrival in the United States and reinterviewed three years later. The specific goal is to examine the applicability to these results of causal variables suggested by recent alternative theoretical perspectives on income attainment. (authors)

Segmentation in the US labour market: its effects on the mobility and earnings of whites and blacks

Abstract: Neoclassical theory assumes that individual workers can freely make a choice among a wide range of job options in the labour market, based upon their personal tastes and preferences. To the degree that institutions such as unions or monopoly producers are recognised in this process, they are considered to be aberrations which distort but do not displace the basic tenets of the theory. Segmentation theory, on the other hand, focuses on groups or classes of workers who face objectively different labour market situations which systematically condition their tastes and restrict their range of effective choices. The development and operation of institutions, which are central to segmentation theory, result in several, rather distinct segments within the labour market. Jobs within one segment differ from jobs within another segment along a number of dimensions, including wages, promotion opportunities, returns to education and training, and employment security. This paper examines the effects of segmentation on two important labour market processes—mobility and the determination of earnings. Labour market segmentation does not constitute a single, unified alternative to neo classical theory, f Segmentation proponents differ in the number and type of distinct segments they propose. Many investigators have focused on occupational divisions of the labour market, in the USA as well as other economies (e.g. Doeringer and Piore, 1971; Harrison, 1972; Reich, Gordon and Edwards, 1973; Rubery, 1978; Velloso, 1975; Liu, 1975). Some sociologists in the USA have recently focused on industrial divisions of the labour market, examining the effects of firm size, market power and unions on the earnings attainment process (e.g. Beck, Horan and Tolbert II, 1978; D'Amico, 1978). Finally, new variants attempt to combine occupational and industrial divisions into one, more complete, notion of segmentation (e.g. Carnoy, 1978; Edwards, 1979; Levin, Carnoy and others, forthcoming).

A Model of Wage-Price Inflation

Abstract: This paper reports the results of estimating a simple three equation model of wage-price inflation, where the endogenous variables to be explained have been taken to be the index of retail prices, the index of weekly wage rates, and the official average earnings index. These three variables were chosen to be explained together, firstly to avoid the choice as to whether the wage rates index or the average earnings variable should represent the labour cost variable, and secondly to allow the alternatives of using hourly wage rates, weekly wage rates, and the appropriately adjusted average earnings for the various exogenous variables (such as overtime working) to be resolved empirically. The price equation has been fully discussed already in a previous paper (1976) and will only briefly be discussed here. The wage and earnings equations were estimated by OLS, 2SLS and FIML methods using an eclectic approach to previous explanations of these variables. The form of the model estimated here is a development of that used by Espasa (1973), but also explores some hypotheses suggested by Johnston and Timbrell (1973) and Parkin etal (1976). In the discussion of the wage equation by Espasa he noted that the rate of change of the wage index could be significantly related to the real wage rate (with interpretation as in Sargan (1964)), but also to the ratio of average earnings to the wage rate index, with a possible interpretation that if earnings are high compared with the wage rate then activity is high, and also workers try to consolidate their temporary prosperity by incorporating the higher level of earnings into the basic wage rate. Alternatively the interaction between earnings and wage rates can perhaps be regarded as an inadequate and aggregated representation of the battle of the differentials. Previous work has attempted to build disaggregated models of the labour market in which each occupational group of workers responds to differentials between their own wage level and those of other groups of workers, for example the work by Vernon reported in Sargan (1971). Each macrovariable can be regarded as a differently weighted aggregate of the underlying microwage-variables, and the dynamic models which are estimated for the macro-variables represents an empirical attempt to represent the complex dynamics of the micro-model. Following the previous work by Johnston and Timbrell (1973) it was decided to explore the use of the income tax retention rate as a variable in the wage equation. It was also decided following Parkin et al (1972), (1976), to explore the use of expected rates of price inflation. The equations were initially estimated using single equation estimators, but were re-estimated by simultaneous equation system estimators. All the equations in this paper are in log linear form with the symbols representing the logarithms of the economic variables. The most general form of wage equation used can be summarized as

Further Evidence on the Returns to School Quality.

Abstract: Census data from 1960 and 1970, augmented with schooling data (expenditures per pupil as well as other measures of school quality) from the various Biennial Surveys of Education, are utilized to analyze the impact of school quality on earnings and to investigate secular changes in rates of return to school quality. This research indicates that the effect of expenditures per pupil on earnings is smaller than that estimated by previous researchers. However, there has been a substantial improvement for blacks in the last decade, while the returns to the investment in the quality of education of white males have been unchanged. The major focus of research on the economic benefits of education has been on the returns to additional years, that is, the quantity, of schooling. Comparatively little emphasis on the returns to school quality can be found in the literature, primarily because of the lack of adequate data. However, in recent years a literature that uses data on the resource inputs into schooling as a proxy for quality has emerged. Most of this literature uses average per pupil school expenditures as a measure of school quality. The returns to school expenditures have been examined with small and/or specialized data sets by Morgan and Sirageldin [12], Johnson and Stafford [7], Morgenstern [13], Ribich and Murphy [14], Link and Ratledge [10, 11], Wachtel [17, 18], and most recently in this Journal by Akin and Garfinkel [1]. In addition, several authors have examined the returns to other measures of school quality such as teacher-pupil ratios and the length of the school year (see Wachtel [17] and Welch [19]). Rizzuto is a member of thefaculty of the University of Den ver. Wachtel is a member ofthe faculty of the Graduate School of Business Administration, New York University. [Manuscript received June 1978; accepted February 1979.] The Journal of Human Resources * XV * 2 0022-166x/80/0002-0240 $01.00/0 ? 1980 by the Regents of the University of Wisconsin System This content downloaded from 207.46.13.62 on Fri, 14 Jul 2017 17:38:56 UTC All use subject to http://about.jstor.org/terms Rizzuto and Wachtel | 241 In general, the conclusions to be drawn from this literature can be summarized as follows: First, expenditures per student exert a positive and significant influence on earnings. Second, the returns to school quality are substantially greater for blacks than for whites. Third, there are diminishing returns to per pupil expenditures on schooling. Fourth, there exists a tradeoff between the quantity and quality of education (i.e., years of schooling and expenditures per pupil can be viewed as substitutes for one another). Fifth, society's marginal rate of return to the investment in school quality is at least as large as its marginal return to investment in additional years of schooling. Finally, expenditures per student have a positive effect on the level of educational attainment.' In spite of these findings, there are several gaps in the research on school quality. First, the finding that returns to school quality for blacks are substantially greater than those for whites must be viewed as tentative because they are often based on small samples of blacks. Second, because of the lack of comparability among the samples utilized, there has been no discussion of the secular movements in the marginal social rates of return to school quality and, in particular, the change in rates of return of blacks relative to whites. Finally, most results are based on expenditures per pupil as a measure of school quality, which is likely to be an imperfect proxy.2 In this paper, these issues are investigated with earnings data from the U. S. Census of Population for 1960 and 1970 which is augmented, as discussed below, with schooling data from the various Biennial Surveys of Education. This data set is particularly useful in addressing these issues because it provides large and representative samples of the population for both blacks and whites. In addition, this unique data set provides comparable samples for 1960 and 1970 so that secular changes in the returns to schooling can be examined. 1 However, Morgenstern [13] and Ribich and Murphy [14] found little or no relationship between expenditures per student and earnings (i.e., average hourly wage for Morgenstern and lifetime earnings in the case of Ribich and Murphy). Aspects of the methodology utilized in each case may be suspect. Morgenstern's school-quality variable was expenditure per pupil in the state where the person spent his formative years divided by the national average of expenditures per pupil for the same time period. The division by the national average was supposed to remove the effect of inflation in school costs, but may also introduce errors in variables. Ribich and Murphy use data on individual earnings and occupation obtained five years after scheduled high school graduation to construct estimates of lifetime earnings. Not only are a single year's earnings and occupation a poor proxy for future earnings, earnings at such an early age also are likely to be lower since individuals with large investments in education tend to have jobs with more on-the-job training. 2 This is because it is difficult to deflate expenditures for both changes in costs over time and differences in costs among areas. Of the studies mentioned, only Akin and Garfinkel [1] do both. Furthermore, a simultaneity problem makes interpretation of the earnings/expenditure relationship difficult. Areas with high average incomes are likely to have high average schooling expenditures, so the direction of causality is uncertain. This content downloaded from 207.46.13.62 on Fri, 14 Jul 2017 17:38:56 UTC All use subject to http://about.jstor.org/terms 242 THE JOURNAL OF HUMAN RESOURCES MODEL SPECIFICATION AND DATA The Structure of the Model The basic model that was utilized to investigate the relationship between earnings and human capital investment, in the form of schooling, is the following: lnY = ao + a1EXP + a2EXP2 + a3lnW + a4S + a51nQ + a6URB + U where lnY = the natural logarithm of annual earnings, EXP = years of labor market experience, EXP2 = years of labor market experience squared, lnW = the natural logarithm of the number of weeks worked, S = years of schooling, lnQ = the natural logarithm of annual expenditures per elementary school pupil in average daily attendance, URB = one/zero dummy variable to represent urban residence at the time of the Census, and U = the residual. The conceptual framework underlying this earnings function as well as its functional form have been well documented in the human capital literature.3 Briefly, years of experience (EXP) and the experience squared term (EXP2) reflect the net returns to investment in on-the-job training. The weeks worked variable (lnW) is a way of standardizing for variation in work effort, chiefly unemployment and work-leisure preferences. The years of schooling (S) and the school quality (lnQ) variables represent measures of the investment in human capital. The expenditure variable is in logarithmic form so that its coefficient is an estimate of the elasticity of earnings with respect to school expenditures. Finally, urban residence (URB) has been added since earnings tend to be greater in urban areas.

Returns to Informational Advantages: The Case of Analysts' Forecast Revisions

Abstract: This paper evaluates whether the primary and secondary dissemination of earnings forecast revisions by security analysts is reflected in security prices. Security prices were used to determine the profitability (before the cost of search) of trading strategies based on the nonpublic knowledge of forecast revisions. For a sample of 288 weekly earnings forecast revisions, the results were consistent with the hypothesis that early knowledge of forecast revisions could be used to form profitable trading strategies. Furthermore, the secondary dissemination of forecasts continued to have information content at the point of disclosure. These results are inconsistent with the strong form, but consistent with the semi-strong form, of market efficiency. Furthermore, the information contemporaneously available from public sources did not generate equivalently profitable trading rules, indicating that forecast revisions were not deducible from other publicly available information. Finally, some general public policy implications concerning mandatory disclosure of forecasts were drawn.