Showing papers on "Earnings published in 1995"
TL;DR: In this article, the authors hypothesize that losses are less informative than profits about the firm's future prospects, and they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses.
2,456 citations
TL;DR: In this paper, the authors hypothesize that the level of managerial ownership affects both the informativeness of earnings and the magnitude of discretionary accounting accrual adjustments, and show that managerial ownership is positively associated with earnings' explanatory power for returns and inversely related to the extent and consequences of accounting-based contractual constraints.
1,564 citations
TL;DR: The authors investigated the extent to which executives manipulate earnings to maximize the present value of bonus plan payments, and they found evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum.
1,170 citations
TL;DR: In this article, the determinants of dominant language fluency, its effects on earnings, and its endogeneity with earnings among immigrants were investigated, and it was hypothesized that Dominant Language Fluency is hypothesized to be correlated with immigrants' earnings.
Abstract: This study is concerned with the determinants of dominant language fluency, its effects on earnings, and its endogeneity with earnings among immigrants. Dominant language fluency is hypothesized to...
1,004 citations
TL;DR: In this article, the role of corporate governance mechanisms during top executive turnover in Japanese corporations was examined and the sensitivity of non-routine turnover to earnings performance was higher for firms with ties to a main bank than for firms without such ties.
983 citations
TL;DR: Acharya et al. as mentioned in this paper showed that a higher CAR is associated with a lower after-tax return on equity (ROE), and that the relationship between CAR and ROE holds both cross-sectionally and over time, holds when lags are included, and becomes even stronger when an extensive set of control variables is added to the regressions.
Abstract: ACCORDING TO CONVENTIONAL WISDOM in banking, a higher capital-asset ratio (CAR) is associated with a lower after-tax return on equity (ROE). The arguments in favor of this hypothesized negative relationship between capital and earnings have intuitive appeal and are consistent with standard oneperiod models of perfect capital markets with symmetric inforrnation between a bank and its investors. A higher capital ratio tends to reduce the risk on equity and therefore lowers the equilibrium expected return on equity required by investors. In addition, a higher CAR lowers after-tax earnings by reducing the tax shield provided by the deductibility of interest payments. Moreover, the reduced risk from a higher capital ratio may depress earnings by lowering the value of access to federal deposit insurance that at best imperfectly prices risk. Despite these arguments, the data on U.S. banks in the mid-to-late 1980s tell a very different story. Book values of CAR and ROE are positively related, and this relationship is both statistically and economically significant. As shown below, the positive relationship between CAR and ROE holds both cross-sectionally and over time, holds when lags are included, and becomes even stronger when an extensive set of control variables is added to the regressions. There are a number of potential explanations for the positive capital-earnings reThe opinions expressed do not necessarily reflect those of the Board of Governors or its staff. The author thanks Alan Greenspan for suggesting the original idea for this research, and the anonymous referees for making numerous suggestions that improved the paper. The author also thanks Sankar Acharya, Mark Carey, Sally Davies, Ed Ettin, Gary Gorton, David Jones, Pat McAllister, Myron Kwast, Jim O'Brien, Rich Rosen, and Greg Udell for helpful comments and thanks John Leusner, Jalal Akhavein, and Joe Scalise for outstanding research assistance.
805 citations
TL;DR: In this article, short-term price reaction is a function of the strength of the recommendation, the magnitude of the change in recommendation, analyst reputation, and broker size appear to have temporary, price pressure effects.
Abstract: Brokerage house buy and sell recommendations influence stock prices. Short-term price reaction is a function of the strength of the recommendation, the magnitude of the change in recommendation, the reputation of the analyst, the size of the brokerage house, the size of the recommended firm, and contemporaneous earnings forecast revisions. The strength of the recommendation, firm size, and contemporaneous earnings forecast revisions are associated with price changes that appear to be permanent, information effects. The magnitude of the change in recommendation, analyst reputation, and broker size appear to have temporary, price pressure effects.
786 citations
TL;DR: In this article, the authors explore the information effect of financial risk management and show that if hedge transactions are not disclosed (i.e., firms report only aggregate earnings), managers hedge to achieve greater risk reduction than they would if full disclosure were required.
Abstract: This article explores the information effect of financial risk management. Financial hedging improves the informativeness of corporate earnings as a signal of management ability and project quality by eliminating extraneous noise. Managerial and shareholder incentives regarding information transmission may differ, however, leading to conflicts regarding an optimal hedging policy. We show that these incentives depend on the accounting information made available by the firm. Under some circumstances, if hedge transactions are not disclosed (i.e., firms report only aggregate earnings), managers hedge to achieve greater risk reduction than they would if full disclosure were required. In these cases, it is optimal for shareholders to request only aggregate accounting reports. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
772 citations
TL;DR: In this article, the authors build a theory of income smoothing based on the managers' concern about keeping their position or avoiding interference, and on the idea that current performance receives more weight than past performance when one is assessing the future.
Abstract: "Income smoothing" is the process of manipulating the time profile of earnings or earnings reports to make the reported income stream less variable. This paper builds a theory of income smoothing based on the managers' concern about keeping their position or avoiding interference, and on the idea that current performance receives more weight than past performance when one is assessing the future. When investment is added to the model, so that income reports and dividends can be set independently, we find that both dividends and income reports may be smoothed and that dividends may convey information not present in the income report.
762 citations
TL;DR: In this article, the authors investigate how banks alter the timing and magnitude of transactions and accruals to achieve primary capital, tax, and earnings goals, and they relax the assumption that when managers make a particular accrual or transaction decision, all other decisions are fixed.
Abstract: This paper investigates how banks alter the timing and magnitude of transactions and accruals to achieve primary capital, tax, and earnings goals. Recent research, including Moyer [1990], Scholes, Wilson, and Wolfson [1990], and Collins, Shackelford, and Wahlen [1995], provides evidence that banks execute transactions and manage accruals to achieve some or all of these objectives. A common feature of these studies is the assumption that when managers make a particular accrual or transaction decision, all other decisions are fixed. We relax this assumption and allow such decisions to be determined simultaneously.
757 citations
Posted Content•
TL;DR: This article examined the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors and found that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks.
Abstract: This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.
Journal Article•
TL;DR: In this paper, a positive association between firms' tendency to access capital markets and to disclose earnings forecasts was found, suggesting that firms attempt to mitigate potential consequences of differential information through disclosure.
Abstract: This paper documents a positive association between firms' tendencies to access capital markets and to disclose earnings forecasts, suggesting that firms attempt to mitigate potential consequences of differential information through disclosure. Our evidence also indicates that firms financing externally are not significantly more likely to forecast in the period shortly before an offering than at other times. Therefore, while firms that issue more capital tend to issue more forecasts, forces such as legal liability deter them from more frequent forecasting around the time of an actual offering. The paper also documents that management forecasts are not systematically greaterthan analysts' existing expectations, orthan subsequently realized earnings. The data thus suggest that to the extent firms benefit from issuing favorable earnings forecasts when offering securities, compet- ing forces such as potential legal liability and reputation costs deterthem from issuing optimistic forecasts.
TL;DR: In this article, the authors provide a framework for choosing between price and return models, and empirically confirm that return models' earnings response coefficients are less biased than price models' response coefficients.
TL;DR: The authors examined the impact of individual banks' changing levels of capital, earnings, and taxes on decisions to engage in seven capital-raising options: security gains and losses, loan loss provisions, loan charge-offs, capital notes, common stock, preferred stock, and dividends.
Abstract: This study investigates bank-specific regulatory capital-raising decisions. Such decisions are expected to be coordinated with financial reporting and/or tax incentives. We examine the impact of individual banks' changing levels of capital, earnings, and taxes on decisions to engage in seven capital-raising options: security gains and losses, loan loss provisions, loan charge-offs, capital notes, common stock, preferred stock, and dividends. Unlike related studies, we measure capital, earnings, and tax pressures relative to within-bank means, rather than relative to annual or pooled cross-sectional means, by estimating bank-specific regressions for each of the capital-raising options from 1971 to 1991. Thus, we capture differences in banks' priorities and strategies for
TL;DR: This paper examined the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980-1990 period, and found that when earnings before discretionary payments fall below the lower bound, managers select income-increasing discretionary payments and vice versa.
TL;DR: This article examined the effects of policy and non-policy variables on the location of new U.S. direct investment abroad (as distinct from reinvested earnings of existing affiliates), using 1977 and 1982 Benchmark data.
Abstract: This study examined the effects of policy and non-policy variables on the location of new U.S. direct investment abroad (as distinct from reinvested earnings of existing affiliates), using 1977 and 1982 Benchmark data. The data revealed statistically significant effects for investment incentives (positive), performance requirements (negative), and host country effective tax rates (negative) with interesting differences between the two time periods and between developed versus developing countries. Significance was also found for non-policy variables such as political stability, cultural distance, GDP per capita, and infrastructure.
TL;DR: This paper used the 1970, 1980, and 1990 Public Use Samples of the U.S. census to document what happened to immigrant earnings in the 1980s and to determine if pre-1980 immigrant flows reached earnings parity with natives.
Abstract: This article uses the 1970, 1980, and 1990 Public Use Samples of the U.S. census to document what happened to immigrant earnings in the 1980s and to determine if pre-1980 immigrant flows reached earnings parity with natives. The relative entry wage of successive immigrant cohorts declined by 9% in the 1970s and by an additional 6% in the 1980s. Although the relative wage of immigrants grows by 10% during the first 2 decades after arrival, recent immigrants will earn 15%-20% less than natives throughout much of their working lives.
TL;DR: This paper used longitudinal data on children and their parents to assess the extent of intergenerational mobility in Britain and found that the extent is limited, and that there is an important asymmetry in inter-generational earnings mobility with upward mobility from the bottom, of the earnings distribution being more likely than downward Mobility from the top.
Abstract: In this paper we use longitudinal data on children and their parents to assess the extent of intergenerational mobility in Britain. Based on data from the National Child Development Survey, a cohort of all individuals born in a week of March 1958, we find that the extent of intergenerational mobility is limited. We report an intergenerational correlation of the order .40 to.60 for fathers and sons and .45 to.70 for fathers and daughters in terms of labour market earnings and years of schooling. An examination of quartile transition matrices between parental and child earnings outcomes reveals a similar pattern. Finally, it seems, on the basis of these transition matrices, that there is an important asymmetry in intergenerational earnings mobility with upward mobility from the bottom, of the earnings distribution being more likely than downward mobility from the top.
Posted Content•
TL;DR: In this paper, a small-scale audit study was conducted to investigate the discrimination against women in restaurant hiring and found that women had an estimated probability of receiving a job offer that was lower by about.5 compared to men.
Abstract: This paper reports on a small-scale audit study that investigates sex discrimination in restaurant hiring. Comparably matched pairs of men and women applied for jobs as waiters and waitresses at 65 restaurants in Philadelphia. The 130 applications led to 54 interviews and 39 job offers. The results provide statistically significant evidence of sex discrimination against women in high-price restaurants. In high-price restaurants, job applications from women had an estimated probability of receiving a job offer that was lower by about .5, and an estimated probability of receiving an interview that was lower by about .4. These hiring patterns appear to have implications for sex differences in earnings, as informal survey evidence indicates that earnings are higher in high-price restaurants.
TL;DR: In this article, eight explanations for UK income inequality trends between 1971 and 1986 are assessed by pooling evidence from inequality index decompositions by population subgroup and by income source.
Abstract: Eight explanations for UK income inequality trends between 1971 and 1986 are assessed by pooling evidence from inequality index decompositions by population sub-group and by income source. The principal causes of the aggregate trends were a mixture of changes in earnings inequality, employment structure and unemployment, but this mixture changed over time. The impact of wage inequality changes on income inequality changes fell during the 1970s and 1980s, reflecting the secular decline in the importance of employment earnings for household income packages. Unemployment changes had their largest impact at the start of the 1980s. Between 1981 and 1986 self-employment income changes appear to have had the largest influence.
TL;DR: In this paper, the authors estimate the effect of arrests on the employment and earnings of arrestees, using a large longitudinal data set constructed by merging police records with UI earnings data, finding that the effects of arrests are moderate in magnitude and rather short-lived.
Abstract: Many young men commit crime, and many are arrested. I estimate the effect of arrests on the employment and earnings of arrestees, using a large longitudinal data set constructed by merging police records with UI earnings data. I find that the effects of arrests are moderate in magnitude and rather short-lived.
TL;DR: In this article, the authors investigate fair value accounting critics' assertions by restating earnings and regulatory capital to reflect banks' disclosed investment securities fair values and find that fair value-based earnings are more volatile than historical cost earnings, but share prices do not reflect the incremental volatility.
Abstract: We investigate fair value accounting critics' assertions by restating earnings and regulatory capital to reflect banks' disclosed investment securities fair values. We find: (1) Fair value-based earnings are more volatile than historical cost earnings, but share prices do not reflect the incremental volatility. (2) Banks violate regulatory capital requirements more frequently under under fair value than historical cost accounting. Fair value-based violations help predict regulatory capital violations, but share prices do not reflect this potential increased regulatory risk. Only historical cost violations are market information events. (3) Share prices reflect interest rates changes, even though investment securities' contractual cash flows are fixed.
TL;DR: This paper showed that college performance and selectivity have significant effects on earnings and suggested that work that does not include college performance overstates the effect of college performance. But they did not consider the impact of college selectivity on earnings.
Abstract: This article shows that college performance and selectivity have significant effects on earnings. It suggests that work that does not include college performance overstates the effect of college se...
TL;DR: In this article, the authors search for links between school quaity and subsequent earnings of students using data for white males from the National Longitudinal Survey of Youth (NLSSY).
Abstract: The paper searches for links between school quaity and subsequent earnings of students. Using data for white males from the National Longitudinal Survey of Youth, the paper rejects the hypothesis that workers' earnings are independent of which high school they attended. However, traditional measures of school 'quality' such as class size, teachers' salaries and teachers' level of education fail to capture these differences. This result is robust to changes in specification and subsample. The paper contrasts the results with those of D. Card and A. B. Krueger (1992) and speculates that structural changes may have weakened the link between traditional measures of school quality and student outcomes. Copyright 1995 by MIT Press.
Posted Content•
TL;DR: The authors compare patterns of earnings inequality and pay differentials in the United States, Australia, Korea, Japan, Western Europe, and the changing economies of Eastern Europe and find that less-educated young men in particular have suffered unprecedented losses in real earnings.
Abstract: During the past two decades, wages of skilled workers in the United States rose while those of unskilled workers fell; less-educated young men in particular have suffered unprecedented losses in real earnings. These twelve original essays explore whether this trend is unique to the United States or is part of a general growth in inequality in advanced countries. Focusing on labor market institutions and the supply and demand forces that affect wages, the papers compare patterns of earnings inequality and pay differentials in the United States, Australia, Korea, Japan, Western Europe, and the changing economies of Eastern Europe. Cross-country studies examine issues such as managerial compensation, gender differences in earnings, and the relationship of pay to regional unemployment. From this rich store of data, the contributors attribute changes in relative wages and unemployment among countries both to differences in labor market institutions and training and education systems, and to long-term shifts in supply and demand for skilled workers. These shifts are driven in part by skill-biased technological change and the growing internationalization of advanced industrial economies.
Posted Content•
TL;DR: This paper used Social Security data on the earnings of military applicants to the all-volunteer forces to compare the military applicants' earnings with those of non-commissioned military applicants who did not enlist.
Abstract: This study uses Social Security data on the earnings of military applicants to the all-volunteer forces to compare the earnings of Armed Forces veterans with the earnings of military applicants who did not enlist. Matching, regression, and Instrumental Variables (IV) estimates are presented. The matching and regression estimates control for most of the characteristics used by the military to select qualified applicants from the military applicant pool. The IV estimates exploit an error in the scoring of exams used by the military to screen applicants between 1976 and 1980. All the estimates suggest that soldiers who served in the early 1980s were paid considerably more than comparable civilians while in the military. Military service also appears to have led to a modest (less than 10 percent) increase in the civilian earnings of nonwhite veterans while actually reducing the civilian earnings of white veterans. Most of the positive effects of military service on civilian earnings appear to be attributable to improved employment prospects for veterans.
TL;DR: In this paper, the authors provide evidence on the relation between the timeliness of voluntary earnings disclosures and the outcomes of related stockholder litigation and find that many lawsuits result from voluntary disclosures of adverse earnings news.
Abstract: This paper provides evidence on the relation between the timeliness of voluntary earnings disclosures and the outcomes of related stockholder litigation. Like Francis Philbrick and Schipper (1994a) I find that many lawsuits result from voluntary disclosures of adverse earnings news. However I also document that: (1) many voluntary earnings disclosures are not made on a timely basis; (2) less timely voluntary disclosures result in more costly lawsuit outcomes; (3) a simple model that predicts that lawsuits occur if large firms release adverse earnings news on earnings announcement dates works well in predicting stockholder litigation. Overall it seems lawsuit outcomes depend at least to some degree on the "merits" of stockholders' claims so that managers can benefit by making more timely earnings disclosures.
TL;DR: In this paper, the authors discussed, updated and extended the Wilkie investment model, which covers price inflation, share dividends, share dividend yields (and hence share prices) and long-term interest rates, taken at annual intervals.
Abstract: In this paper the ‘Wilkie investment model’ is discussed, updated and extended. The original model covered price inflation, share dividends, share dividend yields (and hence share prices) and long-term interest rates, and was based on data for the United Kingdom from 1919 to 1982, taken at annual intervals. The additional aspects now covered include: the extension of the data period to 1994 (with omission of the period from 1919 to 1923); the inclusion of models for a wages (earnings) index, short-term interest rates, property rentals and yields (and hence property prices) and yields on index-linked stock; consideration of data for observations more frequently than yearly, in particular monthly data; extension of the U.K. model to certain other countries; introduction of a model for currency exchange rates; extension of certain aspects of the model to a larger number of other countries; and consideration of more elaborate forms of time-series modelling, in particular cointegrated models and ARCH models.
TL;DR: In this article, the authors provide an explanation for why corporate officers manage the disclosure of accounting information and show that earnings management affects firm value when value-maximizing managers and investors are asymmetrically informed.
TL;DR: In this article, the authors analyze the decision by teachers to leave the profession and affirm the importance of relative earnings in the tenure and turnover decisions of teachers, using an econometric modeling approach used yields important insights into the appropriateness of adopting a flexible, semiparametric specification of the duration dependence structure and of the unobserved heterogeneity distribution in duration models.
Abstract: In this paper, the authors analyze the decision by teachers to leave the profession. Their results affirm the importance of relative earnings in the tenure and turnover decisions of teachers. The econometric modeling approach used yields important insights into the appropriateness of adopting a flexible, semiparametric specification of the duration dependence structure and of the unobserved heterogeneity distribution in duration models. Copyright 1995 by Royal Economic Society.