Showing papers on "Earnings published in 1987"
Posted Content•
TL;DR: This article analyzed the way in which the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the migration decision and showed that differences in the U.S. earnings of immigrants with the same measured skills, but from different home countries, are attributable to variations in conditions in the country of origin at the time of migration.
Abstract: This paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the migration decision. The conditions that determine the nature of the self -selection are derived and depend on economic and political characteristics of the sending and receiving countries. The empirical analysis shows that differences in the U.S. earnings of immigrants with the same measured skills, but from different home countries, are attributable to variations in conditions in the country of origin at the time of migration.
2,584 citations
TL;DR: In this article, the authors analyzed the way in which the earnings of the immigrant population may be expected to differ from those of the native population because of the endogeneity of the decision to migrate.
Abstract: This paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the decision to migrate. The empirical study shows that differences in the U.S. earnings of immigrants with the same measured skills but from different home countries are attributable to variations in political and economic conditions in the countries of origin at the time of migration. (EXCERPT)
2,053 citations
TL;DR: In this paper, the authors present the basic model of an agricultural household that underlies most of the case studies undertaken so far, assuming that households are price-takers and is therefore recursive.
Abstract: This book presents the basic model of an agricultural household that underlies most of the case studies undertaken so far. The model assumes that households are price-takers and is therefore recursive. The decisions modeled include those affecting production and the demand for inputs and those affecting consumption and the supply of labor. Comparative results on selected elasticities are presented for a number of economies. The empirical significance of the approach is demonstrated in a comparison of models that treat production and consumption decisions separately and those in which the decisionmaking process is recursive. The book summarizes the implications of agricultural pricing policy for the welfare of farm households, marketed surplus, the demand for nonagricultural goods and services, the rural labor market, budget revenues, and foreign exchange earnings. In addition, it is shown that the basic model can be extended in order to explore the effects of government policy on crop composition, nutritional status, health, saving, and investment and to provide a more comprehensive analysis of the effects on budget revenues and foreign exchange earnings. Methodological topics, primarily the data requirements of the basic model and its extensions, along with aggregation, market interaction, uncertainty, and market imperfections are discussed. The most important methodological issues - the question of the recursive property of these models - is also discussed.
1,242 citations
TL;DR: In this article, the authors examine whether the magnitude of the effect of unexpected earnings on stock returns is correlated with the presen t value of revisions in expected future earnings derived from a univa riate time-series model.
Abstract: This study designs and implements new tests of the information contained in accounting earnings. The authors examine whether the magnitude of the effect of unexpected earnings on stock returns is (positively) correlated with the presen t value of revisions in expected future earnings derived from a univa riate time-series model. By addressing the valuation implications of the time-series properties of earnings, they uncover a new dimension to the information content of earnings and, in the process, find no e vidence that the reactions of stock returns to unexpected earnings ar e excessively volatile. Copyright 1987 by the University of Chicago.
982 citations
Posted Content•
603 citations
TL;DR: This article examined two corollaries of Atiase's differential information hypothesis and found that security prices of large firms anticipate accounting earnings earlier than small firms, and for a given level of ‘unexpected’ earnings, the cumulative abnormal returns of small firms exceed those of large ones.
581 citations
TL;DR: This article used a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage, and they found that the effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career.
Abstract: Many previous studies have found a strong positive effect of job seniority (tenure) on wages. This paper re-examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage. We use the variation of tenure over a given job match as the principal instrumental variable for tenure. The variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation. Our main finding is that the partial effect of tenure on wages is small, and that general labour market experience and job shopping account for most wage growth over a career. The strong cross section relationship between tenure and wages is due primarily to heterogeneity bias. Prior researchers (see Mincer and Jovanovic (1981), Bartel and Borjas (1981), Borjas (1981), Cline (1979) and Mellow (1981) and many others) have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section-time series of individuals. In this paper, we re-evaluate the evidence concerning the partial effects on wages of job seniority (tenure) and total labour market experience. The extent to which wages rise with tenure is important for several reasons. First and foremost, the wage-tenure profile is a fundamental question about the structure of earnings over careers. Second, the wage-tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs, and it is important for assessment of the losses suffered by "displaced" workers (Hamermesh (1984)). Third, evidence that wages rise with job tenure has been used to explain the decline in quits with tenure, since the wage growth on the current job lowers the probability that the worker will locate a superior alternative. A growing theoretical literature (surveyed in Parsons (1984)) has taken the evidence of a strong wage-tenure profile at face value and sought to provide an explanation for the relationship. The most prominent explanation is the theory of specific human capital (Oi (1962), Becker (1962), Mincer (1974), Parsons (1972), Kuratani (1973), and Hashimoto (1980)), in which the growth of wages with tenure (holding experience constant) is attributed to the worker's share of investments in firm-specific skills. More recently, Lazear (1981) has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk. Freeman (1977) and Harris and Holmstrom (1982) provide an explanation for wage growth based on an insurance motive. Salop and Salop (1976), Nickell (1976), and Guasch and Weiss (1982) present adverse selection models of wage growth in which firms use a wage-tenure profile as a
549 citations
TL;DR: In this article, the authors explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price-based earnings forecasts, and find that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms.
534 citations
TL;DR: In this article, the authors examined the ways in which independent contractors-producers, directors, cinematographers, and actors-organize and operate to reduce uncertainty and risk and to increase profits.
Abstract: The Hollywood film industry is considered as a system of recurrent ties among the various major participants who usually work under short-term contracts for single films. This form of project-based organization in seen as a response to uncertainty and risk in the film industry. The Paper examines the ways in which independent contractors-producers, directors, cinematographers, and actors-organize and operate to reduce uncertainty and risk and to increase profits. The analysis of data from 2,430 films made in the period 1965-80 establishes patterns of recurrent ties among participants who are at comparable levels of cumulative productivity with respect to earnings, Oscars, Oscar nominations, and number of previous films. The paper also considers the degree to which film earnings are influenced by the past productivity of the major participants.
520 citations
TL;DR: Bamberg and Spreman as mentioned in this paper explored the possibility that, despite the information asymmetry, the investment opportunities may still be efficiently financed by an appropriate choice of financing instruments that reveals the private information of corporate insiders to investors.
Abstract: This paper characterizes the conditions under which the adverse-selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first-degree-stochastic-dominance or a mean-preserving-spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues. IT HAS BEEN DEMONSTRATED by Myers and Majluf [17] that, to the extent that firms are unable to communicate their future prospects credibly to investors, the resulting adverse-selection problem may cause significant social welfare losses by inducing firms to forego investment opportunities that would otherwise be profitable. In this paper, we explore the possibility that, despite the information asymmetry, the investment opportunities may yet be efficiently financed by an appropriate choice of financing instruments that reveals the private information of corporate insiders to investors. In doing so, we are able to explain some of the complexities of corporate financings and to offer at least a partial interpretation for so far anomalous findings concerning the effects of corporate financings on security prices. It is natural to consider the firm's choice of financing as a communication device since these choices are easily verifiable and, to the extent that the conditions of the Modigliani-Miller propositions are satisfied, they are costless. Therefore, if the adverse-selection problems due to information asymmetry in capital markets can be overcome by financial policy, it will be efficient to do so, and other more costly forms of communication will be eschewed. Of course, we are not the first to see the communication possibilities of financial policy. Stiglitz [19] remarked that "changes in financial policy may be an important signal for the real prospects of the firm", and there is now extensive literature exploring the signalling aspects of financial policy. The modeIg in most of the earlier papers rely either on an ad hoc managerial-compensation function * UCLA and the University of British Columbia, respectively. An earlier version of this paper appeared as "Notes on Costless Financial Signalling" in Risk and Capital, edited by G. Bamberg and K. Spreman, Springer-Verlag, Berlin, 1984. Previous versions of the paper have been presented at the Western Finance Association Meetings (1982) and seminars at Yale University (1981) and Columbia University (1982). The authors thank J. Williams and the referee for suggestions that have improved the clarity and focus of the paper.
465 citations
TL;DR: In this article, the authors report evidence of substantial and statistically significant sheepskin effects, which suggests that the previous dismissals of the screening hypothesis were premature and is amenable to nonscreening interpretations also.
Abstract: Some previous discussions have dismissed screening theories of education partly on the ground that diploma years of education do not confer especially large earnings gains. Similarly, most empirical research on earnings functions has assumed an absence of "sheepskin" effects. We report evidence, however, of substantial and statistically significant sheepskin effects. Although this suggests that the previous dismissals of the screening hypothesis were premature, our evidence of sheepskin effects is amenable to nonscreening interpretations also. According to screening theories of education, individuals with more schooling tend to earn more not because (or, at least, not solely because) schooling makes them more productive, but rather because it credentiates them as more productive. A frequently cited article by Layard and Psacharopoulos (1974), however, dismissed the importance of the screening hypothesis on the grounds that several of its refutable predictions were not supported by available evidence. One of these was the "sheepskin" prediction that "wages will rise faster with extra years of education when the extra year also conveys a certificate." After surveying a number of studies, Layard and Psacharopoulous (henceforth LP) concluded that "rates of return to dropouts are as high as to those who complete a course, which refutes the sheepskin version of the screening hypothesis." Since publication of the LP paper, an undergraduate labor economics textbook' has cited LP's analysis of sheepskin effects as "telling criticism" of the screening hypothesis. A prominent proponent of the screening hypothesis, Riley (1979), has accepted LP's summary of the empirical evidence, but responded that some versions of the screening hypothesis do not imply sheepskin effects. In the meantime, the ongoing flood of empirical research on earnings functions typically has continued to treat the natural logarithm of the wage rate as a linear (or occasionally quadratic) function of years of education, with no allowance for discontinuities in diploma years.2 The estimated rates of return used by LP were based on data that did not disaggregate dropouts' earnings by how many years of school they had completed. LP acknowledged, "We would have preferred to show the earnings gain associated with each year of the course, including the year when it was successfully completed." This note presents a reanalysis of sheepskin effects based on the type of data LP wished they had. The results contain very strong evidence of sheepskin effects after all. The next section describes our analysis, and the following section summarizes and discusses our
TL;DR: In this paper, the authors provide evidence of security analyst (SA) superiority relative to univariate time-series (TS) models in predicting firms' quarterly earnings numbers and show that SA forecast superiority in their sample is attributable to: (1) better utilization of information existing on the date that TS model forecasts can be initiated, a contemporaneous advantage; and (2) use of information acquired between the date of initiation of TS model and the date when SA forecasts are published, a timing advantage.
TL;DR: The authors examined the impact of surplus schooling on individual productivity and earnings and proposed a model that divides workers' education into two components: education that is required and thus fully utilized in the job, and education that exceeds the amount required and may be underutilized.
Abstract: This article examines the impact of surplus schooling on individual productivity and earnings. It proposes a model that divides workers' education into two components: education that is required and thus fully utilized in the job, and education that exceeds the amount required and thus may be underutilized in the job. The model is tested with data from the 1969, 1973, and 1977 Quality of Working Life Surveys (Quinn and Staines 1979). Required schooling for each occupation is derived from estimates by job incumbents and by the Dictionary of Occupational Titles. The results show thqt surplus or underutilized education is rewarded at a lower rate than required education, with the actual return dependent on the type of job.
Posted Content•
TL;DR: The authors showed that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross-sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker, the job, or the worker-employer match.
Abstract: An important stylized fact about labor markets is that workers with longer seniority with their current employer have higher earnings than other workers with the same total labor market experience. This study shows that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross-sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker, the job, or the worker-employer match. The implication is tha t earnings do not, in fact, rise very much with seniority. Copyright 1987 by American Economic Association.
TL;DR: This article examined the role that measurement error potentially has in multiple regression tests of abnormal returns (occuring around the time of earnings announcements) on an unexpected earnings proxy and other non-earnings variables.
01 Jan 1987
TL;DR: In this paper, the authors examined the relationship between unexpected security returns and unexpected cash flows, after controlling for the relation between unexpected returns and expected earnings, and found that the relationship does not support the hypothesis that working capital from operations (WCFO) has incremental information content relative to that contained in earnings.
Abstract: Current financial reporting practices have traditionally emphasized measures of accrual earnings. On the other hand, the link between future cash flows and firm value is well accepted by financial economists, and recently there has been increased interest in measures of cash flow. This paper provides evidence on the role of accrual (i.e., earnings and working capital from operations [WCFO]) and cash flow measures in an explanatory model of security prices. This issue is first examined by testing for an association between unexpected security returns and unexpected cash flows, after controlling for the relation between unexpected returns and unexpected earnings. We also examine the obverse issue by testing for an association between unexpected security returns and unexpected earnings, after controlling for the relation between unexpected returns and unexpected cash flows. We test these relations in two contexts: in results pooled over the entire ten-year time period studied and in year-byyear cross-sectional regressions. Results for our complete sample are generally consistent with: (1) cash flow data having incremental information content relative to that contained in earnings; (2) cash flow data having incremental information content in addition to that contained in earnings and WCFO; and (3) accrual data (i.e., earnings and WCFO) jointly and separately having incremental information content in addition to that contained in cash flow data. However, the results do not support the hypothesis that WCFO has incremental information content relative to that contained in earnings. T HE onset of higher interest rates and more frequent business failures in the 1970s was accompanied by increased concern over the usefulness of accrual accounting numbers relative to cash flow data. Recently, the Financial Accounting Standards Board (FASB) [1986] has addressed this concern by proposing that the Statement of Changes in Financial Position (SCFP) be replaced by a Cash Flow Statement. The increased emphasis on the more primitive concept of cash flows is a departure from the current institutional environment in which accrual accounting preThe authors wish to thank Vic Bernard, Andrew Christie, George Foster, Lauren Kelly, Dana Klemme, Paul Malatesta, Eric Noreen, Pete Wilson, two anonymous reviewers, and participants in the 1981 and 1984 Robert M. Bowen is Associate Professor of Accounting, University of Washington, David Burgstahler is Associate Professor of Accounting, University of Washington, and Lane A. Daley is AssociateProfessorofAccounting, University of Minnesota. Manuscript received July 1986. Revisions received March 1987 and May 1987. Accepted May 1987.
TL;DR: For example, this paper found that the stock market returns on stock market indexes have on average been higher during the first half-month of calendar quarters 2 through 4 than at other times, and that aggregate corporate earnings news arriving at the market during these halfmonth periods tends to be good, whereas earnings reports arriving later are more likely to convey bad news.
TL;DR: In this article, the authors found statistically significant abnormal stock returns before, at, and after announcements of analyst earnings forecast revisions and a positive correlation between the magnitudes of the forecast revision and the abnormal returns.
Abstract: Empirical evidence suggests that information about a firm's future earnings prospects is important to investors. Griffin [1976], Givoly and Lakonishok [1979; 1980], and Imhoff and Lobo [1984] reported statistically significant abnormal stock returns before, at, and after announcements of analyst earnings forecast revisions. In addition, Imhoff and Lobo documented positive correlation between the magnitudes of the forecast revisions and the abnormal returns. These findings are consistent with the hypothesis that investors find analyst forecast revisions informative. Another source of information about future earnings is projections from corporate officials. Several studies have found unsystematic stock price changes prior to and/or immediately surrounding the public release of management earnings forecasts (e.g., Foster [1973], Nichols and Tsay [1979], Patell [1976], Jaggi [1978], Penman [1980], and Waymire [1984]). The conclusion from this research is that management forecasts also convey information to investors.
01 Jan 1987
TL;DR: This paper investigated the influence of the racial and ethnic composition of labor markets on earnings inequality among black, Hispanic, Asian, and white men to determine whether the influence on earnings of minority labor-market concentration differs by educational level.
Abstract: This paper investigates the influence of the racial and ethnic composition of labor markets on earnings inequality among black, Hispanic, Asian, and white men to determine whether the influence on earnings of minority labor-market concentration differs by educational level. Consistent with other studies, the results, based on the 1980 5% Public Use Microdata Sample, show that Hispanic and nonwhite workers, compared with their white counterparts, lost earnings from residence and work in labor markets with a large share of monority residents and that this relationship was especially pronounced for black men. Further refinement of these results reveals additional differentation by educational groups: the earnings losses of black, Hispanic, and Asian men associated with residence in areas of high minority concentration are greatest among workers with college education and lowest among those who have not completed high school. That college-educated whites gained most from minority concentration emphasizes how ...
TL;DR: The results of empirical tests comparing the accuracy of financial analysts' forecasts (FAF) of firm earnings to predictions from univariate time-series forecasting models are consistent with FAF forecast superiority as discussed by the authors.
Abstract: The results of recent empirical tests comparing the accuracy of financial analysts' forecasts (FAF) of firm earnings to the accuracy of predictions from univariate time-series (TS) forecasting models are consistent with FAF forecast superiority (see Brown et al. [1987a] and their references). The source of this apparent superiority, however, is not well understood. An issue related to earnings forecast superiority is that of determining the most accurate surrogate for the earnings expectations of capital market participants. Researchers have compared the association between earnings surprise and stock returns across alternative surrogates for earnings expectations and have argued that the best surrogate is generated from the earnings forecast model whose errors exhibit the highest
TL;DR: The authors used data from Displaced Worker Survey, a special supplement to the January 1984 Current Population Survey, to estimate a model of reemployment earnings for workers displaced from full-time non-agricultural jobs between January 1979 and January 1984.
Abstract: Using data from the Displaced Worker Survey, a special supplement to the January 1984 Current Population Survey, the authors estimate a model of reemployment earnings for workers displaced from full-time nonagricultural jobs between January 1979 and January 1984. Median losses for workers reemployed full-time were not large, but a sizable minority of that group—mostly workers with substantial specific human capital investments—experienced large and enduring earnings losses.
TL;DR: In this paper, the authors employ reverse regression to assess the information content of security prices with respect to accounting earnings, which is a more efficient way of examining the incremental explanatory power of lagged values of percentage change in price with respectto accounting earnings.
TL;DR: In this article, the authors investigated the relationship between announcements of unexpected changes in financial policy and changes in performance of the firm and found evidence that analysts revise their earnings forecasts following an unexpected dividend change by an amount positively related to the size of the expected dividend change.
Abstract: This paper documents a relationship between announcements of unexpected changes in financial policy and unexpected changes in performance of the firm. Using a new methodology that combines analysis of stock price movements and earnings forecast data, the authors provide evidence that analysts revise their earnings forecasts following the announcement of an unexpected dividend change by an amount positively related to the size of the unexpected dividend change. They also provide evidence that these revisions are positively related to the change in equity value surrounding the announcement. Further, they find that these revisions are consistent with rationality. Their results therefore provide direct evidence consistent with the hypothesis that unexpected dividend changes signal information about firm performance to market participants.
TL;DR: This paper found that CETA-sponsored classroom training, on-the-job training, and subsidized work experience noticeably increased the future earnings of female participants, but had virtually no impact for men.
Abstract: This article presents estimates of program-induced, post-program earnings gains for men and women who enrolled in CETA between January 1975 and June 1976. Data for the analysis were obtained from the Continuous Longitudinal Manpower Survey for CETA participants with corresponding comparison group information for respondents from the March 1976 Current Population Survey. Although subject to methodological limitations, the findings suggest that CETA-sponsored classroom training, on-the-job training, and subsidized work experience noticeably increased the future earnings of female participants, but had virtually no impact for men. Impacts for women were roughly the same for all three program activities and were due primarily to increased employment rather than increased wage rates.
TL;DR: In this article, the sign and magnitude of the changes in earnings expectations conveyed by management forecasts are associated with the price reactions for firms similar to the forecaster, and the results are consistent with information transfers documented for releases of actual earnings and sales announcements.
Abstract: This study documents information transfers associated with the sign and magnitude of the changes in earnings expectations conveyed by management forecasts. That is, the management forecast of one firm (discloser) generates unexpected price reactions for firms (nondisclosers) similar to the forecaster. The results are consistent with information transfers documented for releases of actual earnings (Foster [1981]) and sales announcements (Olsen and Dietrich [1985]).1 These results build on prior management forecast research that has documented a link between the sign and magnitude of the changes in earnings expectations conveyed by management forecasts and the unexpected share returns (price reactions) of forecasting firms (Ajinkya and
TL;DR: Available research supports several major conclusions about the economic consequences of immigration, including that immigrants who arrived during the 1970s are less skilled than earlier arrivals, and their earnings will remain substantially below those of natives throughout their working lives.
Abstract: Available research supports several major conclusions about the economic consequences of immigration. (i) The aggregate impacts of foreign workers on the earnings and employment of native workers are quite small, but differ for selected population subgroups and high ethnic density labor markets. (ii) Immigrants who arrived during the 1970s are less skilled than earlier arrivals, and their earnings will remain substantially below those of natives throughout their working lives. (iii) The evidence on immigrants' receipt of public assistance income is inconclusive.
TL;DR: The authors examined the effect of accounting procedure changes on cash salary and bonus compensation to CEOs and found that the potential compensation effect of the changes is small compared to the effects of economy- or industry-wide changes in compensation.
TL;DR: The authors investigated the extent of labor market competition among immigrants, minorities, and the native population and found that immigrants tend to be substitutes for some labor market groups and complements for others.
Abstract: This paper investigates the extent of labor market competition among immigrants, minorities, and the native population. An analysis of 1980 U.S. Census data reveals that immigrants tend to be substitutes for some labor market groups and complements for others. The effects of shifts in immigrant supply on the earnings of native-born men are, however, very small. On the other hand, increases in the supply of immigrants do have a sizable impact on the earnings of immigrants themselves: an increase of 10 percent in the supply of immigrants, for example, reduces the immigrant wage by about 10 percent.
TL;DR: The authors consider conditions under which characteristics are uniformly priced across sectors of a multisector economy and present empirical evidence that rejects uniform pricing of characteristics as a description of the US labor market.
Abstract: The idea that the labor market of individuals can be decomposed into payments to separate productive attributes has an enduring appeal in economics. Assuming that demographic groups differ only in their endowments of productive characteristics it is possible to rationalize observed demographic earnings differentials without invoking the arguments that characteristics specific to a particular demographic group are direct objects of employer demand. By aggregating skills over all demographic groups it is possible to produce a theory of the market determination of the prices of skills held in different amounts by different demographic groups. This paper considers conditions under which characteristics are uniformly priced across sectors of a multisector economy. The paper presents empirical evidence that rejects uniform pricing of characteristics as a description of the US labor market. Bundling may account for this evudence but other hypotheses do as well. (authors)