Showing papers on "Earnings published in 1989"
TL;DR: The authors developed a model of inefficient managerial behavior in the face of a rational stock market in which managers forsake good investments so as to boost current earnings, and the market correctly conjectures that there will be earnings inflation, and adjusts for this in making inferences.
Abstract: This paper develops a model of inefficient managerial behavior in the face of a rational stock market In an effort to mislead the market about their firms' worth, managers forsake good investments so as to boost current earnings. In equilibrium the market is efficient and is not fooled: it correctly conjectures that there will be earnings inflation, and adjusts for this in making inferences. Nonetheless, managers, who take the market's conjectures as fixed, continue to behave myopically. The model is useful in assessing evidence that has been presented in che "myopia" debate. It also yields some novel implications regarding firm structure and the limits of intergation.
2,269 citations
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TL;DR: In this paper, the authors seek to discriminate between competing explanations of post-earnings-announcement drift, and find that one class of explanations suggests that at least a portion of the price response to new information is delayed.
Abstract: This study seeks to discriminate between competing explanations of "post-earnings-announcement drift." Ball and Brown [1968] were the first to note that even after earnings are announced, estimated cumulative "abnormal" returns continue to drift up for "good news" firms and down for "bad news" firms. Foster, Olsen, and Shevlin [1984] (henceforth FOS) are among the many who have replicated the phenomenon.' FOS estimate that over the 60 trading days subsequent to an earnings announcement, a long position in stocks with unexpected earnings in the highest decile, combined with a short position in stocks in the lowest decile, yields an annualized "abnormal" return of about 25%, before transactions costs. Competing explanations for post-earnings-announcement drift fall into two categories. One class of explanations suggests that at least a portion of the price response to new information is delayed. The delay
2,151 citations
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TL;DR: In this paper, the authors examined the process of selection into self-employment over the life cycle and the determinants of self employment earnings using data from the National Longitudinal Survey of Young Men (NLS) for 1966-1981 and the Current Population Surveys for 1968-1987.
Abstract: About 4.2 million men and women operate businesses on a full-time basis. Comprising more than a tenth of all workers, they run most of our nation’s firms and employ about a tenth of all wage workers. The fraction of the labor force that is self-employed has increased since the mid-1970s after a long period of decline.1 This paper examines the process of selection into self-employment over the life cycle and the determinants of self-employment earnings using data from the National Longitudinal Survey of Young Men (NLS) for 1966–1981 and the Current Population Surveys for 1968–1987.
1,946 citations
TL;DR: In this article, the authors predict and document evidence that the earnings response coefficient is a function of riskless interest rates and the riskiness, growth and/or persistence of earnings.
1,769 citations
TL;DR: The usefulness of earnings to investors was a major motivation for the most concerted research effort in accounting history-the tradition of returns/earnings studies launched by Ball and Brown [1968] and Beaver [1968],.
Abstract: Assessing the usefulness of earnings to investors was a major motivation for the most concerted research effort in accounting history-the tradition of returns/earnings studies launched by Ball and Brown [1968] and Beaver [1968]. That earnings usefulness was the principal issue investigated at the time was made clear at the outset by Ball and Brown; the term usefulness, and closely related phrases such as utility and interest to investors, appear no less than ten times in their brief introduction. The focus on usefulness is reinforced by Ball and Brown in their second section [1968, pp. 160-61]: "Recent developments in capital theory provide justification for selecting the behavior of security prices as an operational test of usefulness. An impressive body of theory supports the proposition that capital markets are both efficient and unbiased in that if information is useful in forming capital asset prices, then the market will adjust asset prices to that information quickly...."1
1,212 citations
TL;DR: In this paper, the authors performed a financial statement analysis that combines a large set of financial statement items into one summary measure which indicates the direction of one-year-ahead earnings changes.
996 citations
TL;DR: In this article, a random coefficient regression model is used to interpret multiple regression models that relate abnormal returns to unexpected earnings and other information variables, and the results show that the model is consistent with these predictions.
857 citations
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TL;DR: The authors used the randomly assigned risk of induction generated by the Vietnam era draft lottery to construct instrumental variables that are correlated with earnings solely by virtue of their correlation with veteran status and found that the effect of Vietnam era military service on white veterans is equivalent to a loss of two years of civilian labor market experience.
Abstract: Estimates of the effect of veteran status on civilian earnings may be biased by the fact that certain types of men are more likely to serve in the armed forces. In this paper, an estimation strategy is employed that enables measurement of the effects of veteran status while controlling for differences in other personal characteristics related to earnings. The randomly assigned risk of induction generated by the Vietnam era draft lottery is used to construct instrumental variables that are correlated with earnings solely by virtue of their correlation with veteran status. Instrumental variables estimates tabulated from Social Security Administration records indicate that in the early 1980's the earnings of white veterans were approximately 15 percent less than nonveteran earnings. In contrast, there is no evidence that nonwhite veterans suffered any lasting reduction in earnings. In an attempt to explain the loss of earnings to white veterans, experience-earnings profiles are estimated jointly with time-varying veteran status coefficients. The estimates suggest that the effect of Vietnam era military service on white veterans is equivalent to a loss of two years of civilian labor market experience.
828 citations
TL;DR: In this article, the authors present an empirical analysis of individual earnings and hours data from three different longitudinal surveys, and find that this structure is very similar across data sets, and may be adequately summarized by a simple components-of-variance model.
Abstract: This paper presents an empirical analysis of individual earnings and hours data from three different longitudinal surveys. In the first part of the paper we catalog the main features of the covariance structure of earnings and hours changes. We find that this structure is very similar across data sets, and may be adequately summarized by a simple components-of-variance model. In the second part of the paper we offer an interpretation of this model in terms of a simple life-cycle labor supply model
606 citations
TL;DR: In this paper, the authors re-examine the relationship between stock returns and the effects of size and earnings to price ratio (E/P), and find evidence of consistently high returns for firms of all sizes with negative earnings.
Abstract: Earlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E/P) is not clear-cut. This paper re-examines these two effects with (a) a substantially longer sample period, 1951-1986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven months. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings.
539 citations
TL;DR: This article examined the impact of overeducation (or surplus schooling) on earnings and found that those with educational attainments substantially above the mean for their specific occupations often earn less than their adequately educated and undereducated counterparts.
Abstract: This paper examines the impact of overeducation (or surplus schooling) on earnings. Overeducated workers are defined as those with educational attainments substantially above the mean for their specific occupations. Two models are estimated using data from the 1980 census. Though our models, data, and measure of overeducation are different from those used by Rumberger (1987), our results are similar. Our results show that overeducated workers often earn less than their adequately educated and undereducated counterparts.
TL;DR: The authors analyzes economic characteristics of firms that correct previously reported quarterly earnings and finds that the sample (correcting) firms are smaller, less profitable, have higher debt, slower growing, and face more serious uncertainties.
TL;DR: Data drawn from the 1972 and 1978 surveys of the disabled done for the Social Security Administration show that fewer than 50% of rejected male applicants work, casting doubt on recent econometric work which suggests that the disincentive effects of DI have been substantial.
Abstract: Applicants for Social Security disability benefits who fail to pass the medical screening form a natural "control" group for beneficiaries. Data drawn from the 1972 and 1978 surveys of the disabled done for the Social Security Administration show that fewer than 50 percent of rejected male applicants work. Typical earnings of those that do are less than 59 percent of median earnings for other men their age. These data cast doubt on recent econometric work that suggests that the disincentive effects of the Social Security Disability Program have been substantial. Copyright 1989 by American Economic Association.
TL;DR: This article studied the case of the Chinese enclave in New York City, using three distinct operational definitions of the enclave-as a place of residence, place of work, and industrial sector, finding that there is considerable evidence of positive returns for earnings for male enclave workers from education, labor market experience, and English-language ability.
Abstract: This study addresses a recent controversy over the character of labor markets in enclave economies: does the enclave provide positive earnings-returns to educational and other human capital characteristics to immigrant minority-group workers? We study the case of the Chinese enclave in New York City, using three distinct operational definitions of the enclave-as a place of residence, place of work, and industrial sector. Regardless of the definition employed, there is considerable evidence of positive returns for earnings for male enclave workers from education, labor market experience, and English-language ability. By contrast, none of these human capital variables is positively related to income of female enclave workers. Implications of these results for comparative research are suggested.
TL;DR: In this article, the authors show that information in prices that leads (future) earnings is contained in financial statements and that a comparison of price to earnings in a P/E calculation can indicate the extent to which current earnings are transitory.
Abstract: A number of papers (for example, Beaver, Lambert, and Morse [1980], Beaver, Lambert, and Ryan [1987], Collins, Kothari, and Rayburn [1987], and Freeman [1987]) have documented that stock prices lead accounting earnings. These investigations have led to the conclusions that prices provide information about earnings ahead of time and that earnings capture events that affect security prices with a lag. The study of P/E ratios has supported those conclusions and also produced additional insights. Beaver and Morse [1978] have shown that PIE ratios not only predict future earnings changes but they also identify transitory aspects of current earnings. Investors utilize other information in setting prices which provides both a prediction of future earnings and an indication of whether current earnings are representative of future earnings. Thus a comparison of price to earnings in a P/E calculation can indicate the extent to which current earnings are transitory.1 In this paper we show that information in prices that leads (future) earnings is contained in financial statements. While accrual accounting
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TL;DR: The authors argued that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income.
Abstract: This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income. There is clear evidence that consumption and income growth are much more closely linked than would be predicted by these theories. it appears that consumption smoothing takes place over periods of several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income component is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer approaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.
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TL;DR: In this article, the choice between self-employment and paid employment is analyzed empirically using a so-called endogenous switching model, which features beside the choice equation earnings, equations for self-employed individuals and employees and is estimated using a two stage structural probit method.
TL;DR: In this article, the authors propose and test the hypothesis that investors reevaluate earnings announcements in the light of postannouncement information, motivated by the literature linking price responses to earnings persistence.
Abstract: In this study, we propose and test the hypothesis that investors reevaluate earnings announcements in the light of postannouncement information.1 Our argument for multiperiod price reactions to earnings news is motivated by the literature linking price responses to earnings persistence.2 When earnings are announced, we assume that investors are unable to determine with certainty the persistence of an earnings
TL;DR: This article analyzed the relationship between earnings and the extent of assimilation, cohort quality change, and return migration experienced by the foreign-born population using the longitudinal data available in the Survey of Natural and Social Scientists and Engineers.
Abstract: This paper analyzes the relationship between earnings and the extent of assimilation, cohort quality change, and return migration experienced by the foreign-born population. The study uses the longitudinal data available in the Survey of Natural and Social Scientists and Engineers. The analysis reveals that there was a sizable decline in the skills of this population over the last two decades. In addition, the study shows that return migration is more likely among immigrants who did not perform well in the U.S. labor market.
TL;DR: The authors reviewed the current state of knowledge on sex differences in earnings in the United States and reviewed explanatory theories advanced to account for the wage gap and the empirical evidence relevant to their evaluation.
Abstract: This paper reviews the current state of knowledge on sex differences in earnings in the United States. The paper has three sections. The first describes the phenomenon under consideration, reviewing what is known about the size of the wage gap, historical and life course variations in the wage gap, and race differences in the wage gap. The second section, which constitutes most of the paper, reviews explanatory theories advanced to account for the wage gap and the empirical evidence relevant to their evaluation. This section is divided into two principle parts. The first considers “supply-side” explanations that focus on the characteristics and decisions of individual workers. These include the human capital theory of economics and alternative views offered by sociologists and social psychologists that focus on processes of socialization and allocation and the operation of social networks. All of these explanations attribute the sex gap in earnings to differences in the qualifications, intentions, and att...
TL;DR: In this paper, the authors seek to discriminate between competing explanations of post-earnings-announcement drift, and find that one class of explanations suggests that at least a portion of the price response to new information is delayed.
Abstract: This study seeks to discriminate between competing explanations of "post-earnings-announcement drift." Ball and Brown [1968] were the first to note that even after earnings are announced, estimated cumulative "abnormal" returns continue to drift up for "good news" firms and down for "bad news" firms. Foster, Olsen, and Shevlin [1984] (henceforth FOS) are among the many who have replicated the phenomenon.' FOS estimate that over the 60 trading days subsequent to an earnings announcement, a long position in stocks with unexpected earnings in the highest decile, combined with a short position in stocks in the lowest decile, yields an annualized "abnormal" return of about 25%, before transactions costs. Competing explanations for post-earnings-announcement drift fall into two categories. One class of explanations suggests that at least a portion of the price response to new information is delayed. The delay
TL;DR: In this article, the effect of managers' earnings forecasts on the security prices of the announcing firms and other firms in the same industry is examined and the results are consistent with information content in managers' forecasts and with information transfer between forecast firms and others in the industry.
TL;DR: In this paper, the authors test whether the stock market overreacts to extreme earnings by examining firms' stock returns over the 36 months subsequent to the extreme earnings years, finding that the poorest earners outperform the best earners.
Abstract: This paper tests whether the stock market overreacts to extreme earnings, by examining firms' stock returns over the 36 months subsequent to extreme earnings years. While the poorest earners do outperform the best earners, the poorest earners are also significantly smaller than the best earners. When poor earners are matched with good earners of equal size, there is little evidence of differential performance. This suggests that size, and not investor overreaction to earnings, is responsible for the "overreaction" phenomenon, the tendency for prior period losers to outperform prior period winners in the subsequent period. RECENTLY, AN INTRIGUING EFFICIENT markets anomaly has emerged. DeBondt and Thaler (1985, 1987) report that equities that experience the lowest (highest) returns over a prior period (2-5 years in their studies), overperform (underperform) the market in the subsequent period. They call this violation of the efficient markets hypothesis the "overreaction" phenomenon since it suggests that investors overreact in the initial period and subsequently correct themselves.1 DeBondt and Thaler (1987) hypothesize that the reason for the overreaction lies in the market's inefficie-nt response to earnings information. Research has found that the random walk model, in which all changes are permanent, provides a good description of the time-series behavior of firms' annual earnings, on average.2 The primary exception to the random walk model comes from firms that have experienced extreme good or bad years, relative to their "normal" performance. The earnings changes of such "outlier" firms are temporary; i.e., earnings regress to the mean.3 If market participants incorrectly perceive the
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TL;DR: In this article, the authors explore the possible roles of increased risk and reduced productivity growth in accounting for the behavior of bond and stock prices in a simple general equilibrium model and find that both disturbances unambiguously lower the riskless interest rate, but may cause the stock market to respond perversely depending on the degree of aversion to intertemporal substitution and the share of the corporate sector in total wealth.
Abstract: The 1970s were associated with very low real interest rates and a large drop in equity values relative to dividends and earnings. This paper explores the possible roles of increased risk and reduced productivity growth in accounting for the behavior of bond and stock prices in a simple general equilibrium model. Both disturbances unambiguously lower the riskless interest rate, but may cause the stock market to respond perversely depending on the degree of aversion to intertemporal substitution and the share of the corporate sector in total wealth. Copyright 1989 by American Economic Association.
TL;DR: This paper found that security analysts are reluctant to revise their forecasts early in the fiscal year and more frequently revise immediately after an announcement, and that the revision activity after an interim announcement is greater if absolute unexpected interim earnings are larger, if there are more competing analysts, and if unexpected interim results are negative.
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TL;DR: A "nested fixed point" algorithm is applied that converts the dynamic programming problem into the problem of repeatedly recomputing the fixed point to a contraction mapping operator as a subroutine of a standard nonlinear maximum likelihood program.
Abstract: This paper formulates a model of retirement behavior based on the solution to a stochastic dynamic programming problem. The workers objective is to maximize expected discounted utility over his remaining lifetime. At each time period the worker chooses how much to consume and whether to work full-time, part-time, or exit the labor force. The model accounts for the sequential nature f the retirement decision problem, and the role of expectations of uncertain future variables such as the worker's future lifespan, health status, marital and family status, employment status, as well as earnings from employment, assets, and social security retirement, disability and medicare payments. This paper applies a "nested fixed point" algorithm that converts the dynamic programming problem into the problem of repeatedly recomputing the fixed point to a contraction mapping operator as a subroutine of a standard nonlinear maximum likelihood program. The goal of the paper is to demonstrate that a fairly complex and realistic formulation of the retirement problem can be estimated using this algorithm and a current generation supercomputer, the Cray-2.