Showing papers on "Earnings published in 2000"
TL;DR: This article found that direct measures of labor-force quality from international mathematics and science test scores are strongly related to growth and that home-country quality differences of immigrants are directly related to U.S. earnings if the immigrants are educated in their own country but not in the United States.
Abstract: Direct measures of labor-force quality from international mathematics and science test scores are strongly related to growth. Indirect specification tests are generally consistent with a causal link: direct spending on schools is unrelated to student performance differences; the estimated growth effects of improved labor-force quality hold when East Asian countries are excluded; and, finally, home-country quality differences of immigrants are directly related to U.S. earnings if the immigrants are educated in their own country but not in the United States. The last estimates of micro productivity effects, however, introduce uncertainty about the magnitude of the growth effects.
2,073 citations
TL;DR: In this paper, the authors investigated the non-pecuniary benefits of self-employment and found that most entrepreneurs enter and persist in business despite the fact that they have both lower initial earnings and lower earnings growth than in paid employment.
Abstract: Possible explanations for earnings differentials in self-employment and paid employment are investigated. The empirical results suggest that the nonpecuniary benefits of self-employment are substantial: Most entrepreneurs enter and persist in business despite the fact that they have both lower initial earnings and lower earnings growth than in paid employment, implying a median earnings differential of 35 percent for individuals in business for 10 years. The differential cannot be explained by the selection of low-ability employees into self-employment and is similar for three alternative measures of self-employment earnings and across industries. Furthermore, the estimated earnings differentials may understate the differences in compensation across sectors since fringe benefits are not included in the measure of employee compensation.
1,897 citations
TL;DR: In this paper, the authors evaluate the effect of this program on education and wages by combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program.
Abstract: Between 1973 and 1978, the Indonesian Government constructed over 61,000 primary schools throughout the country. This is one of the largest school construction programs on record. I evaluate the effect of this program on education and wages by combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program. The estimates suggest that the construction of primary schools led to an increase in education and earnings. Children aged 2 to 6 in 1974 received 0.12 to 0.19 more years of education for each school constructed per 1,000 children in their region of birth. Using the variations in schooling generated by this policy as instrumental variables for the impact of education on wages generates estimates of economic returns to education ranging from 6.8 percent to 10.6 percent.
1,462 citations
TL;DR: In the absence of a generally accepted definition of conservatism, a number of measures of reporting conservatism are identified and examined in this paper, which rely on the accumulation of nonoperating accruals, the timeliness of earnings with respect to bad and good news, characteristics of the earnings distribution and the market-to-book ratio.
1,383 citations
TL;DR: The authors investigated whether CEOs manage the timing of their voluntary disclosures around stock option awards and found that CEOs make opportunistic voluntary disclosure decisions that maximize their stock option compensation, and provided more direct evidence based on management earnings forecasts issued prior to award dates.
1,132 citations
TL;DR: In this paper, the authors examined whether a simple accounting-based fundamental analysis strategy, when applied to a broad portfolio of high book-to-market firms, can shift the distribution of returns earned by an investor.
Abstract: This paper examines whether a simple accounting-based fundamental analysis strategy, when applied to a broad portfolio of high book-to-market firms, can shift the distribution of returns earned by an investor. I show that the mean return earned by a high book-to-market investor can be increased by at least 7.5% annually through the selection of financially strong high BM firms, while the entire distribution of realized returns is shifted to the right. In addition, an investment strategy that buys expected winners and shorts expected losers generates a 23% annual return between 1976 and 1996, and the strategy appears to be robust across time and to controls for alternative investment strategies. Within the portfolio of high BM firms, the benefits to financial statement analysis are concentrated in small and medium-sized firms, companies with low share turnover, and firms with no analyst following, yet this superior performance is not dependent on purchasing firms with low share prices. A positive relationship between the sign of the initial historical information and both future firm performance and subsequent quarterly earnings announcement reactions suggests that the market initially underreacts to the historical information. In particular, one-sixth of the annual return difference between ex ante strong and weak firms is earned over the four three-day periods surrounding
1,106 citations
TL;DR: In this paper, the authors discuss trade-offs associated with three research designs commonly used in the earnings management literature: those based on aggregate accruals, the specific accrual and the distribution of earnings after management.
1,017 citations
TL;DR: In this paper, regularities in the incidence of over-and undereducation are outlined, as well as consequences for individual earnings, using empirical studies from five countries spanning an interval of two decades, and the results are confronted with three theoretical models (search, human capital and assignment), but none of these is convincingly related to the specification of the earnings function.
953 citations
TL;DR: In this paper, the authors investigate how corporate governance systems of large public U.S. corporations vary with information properties of numbers produced by their financial accounting systems and find that in firms whose current accounting numbers do a relatively poor job of capturing the effects of the firm's current activities and outcomes on shareholder value, the accounting numbers are less effective in the governance setting.
Abstract: The purpose of this paper is to investigate how governance systems of large public U.S. corporations vary with information properties of numbers produced by their financial accounting systems. We argue that in firms whose current accounting numbers do a relatively poor job of capturing the effects of the firm's current activities and outcomes on shareholder value, the accounting numbers are less effective in the governance setting. We predict that such firms will substitute costly governance mechanisms to compensate for their less useful accounting numbers. We explore whether governance systems vary with the timeliness of earnings by examining the cross-sectional relation between proxies for earnings timeliness and subsequent corporate governance systems of 784 firms in the Fortune 1000. The governance systems we consider include board composition, stockholdings of inside and outside directors, ownership concentration and the structure of executive compensation. Our results support a significant negative relation between our timeliness metrics and subsequent costly corporate governance mechanisms after controlling for other firm characteristics.
920 citations
TL;DR: In a frictionless world without taxes or transaction costs, dividends and share repurchases are equivalent as discussed by the authors, which is consistent with some documented regularities, specifically both the presence and stickiness of dividends, and offers novel empirical implications, e.g., a prediction that it is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments.
Abstract: This paper explains why some firms prefer to pay dividends rather than repurchase shares. When institutional investors are relatively less taxed than individual investors, dividends induce “ownership clientele” effects. Firms paying dividends attract relatively more institutions, which have a relative advantage in detecting high firm quality and in ensuring firms are well managed. The theory is consistent with some documented regularities, specifically both the presence and stickiness of dividends, and offers novel empirical implications, e.g., a prediction that it is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments. ALTHOUGH A NUMBER OF THEORIES have been put forward in the literature to explain their pervasive presence, 1 dividends remain one of the thorniest puzzles in corporate finance. In a frictionless world without taxes or transaction costs, dividends and share repurchases are equivalent. If dividends are taxed more heavily than capital gains, as is the case in the United States and many other countries, share repurchases are apparently superior to dividends. Nevertheless, dividends continue to be a substantial proportion of earnings—and personal dividend taxes continue to be a substantial source of income for the I.R.S. For the 1973 to 1983 period, dividends for the largest 1,000 firms in the United States averaged 44 percent of earnings whereas repurchases averaged only 6 percent ~see Allen and Michaely ~1995!!. Although, as Bagwell and Shoven ~1989! have stressed, repurchases increased significantly in 1984 and have remained high, repurchases were not a substitute for dividends. From 1984 to 1988, repurchases increased from 6 percent to 38 percent of earnings, but dividends still increased from 44 percent to 51 percent. The I.R.S. Statistics of Income publication documents that taxable dividends in adjusted gross income amounted to $82 billion in about
910 citations
TL;DR: The authors found that education and labor market experience acquired abroad are significantly less valued than human capital obtained domestically, and that the difference can explain the earnings disadvantage of immigrants relative to comparable natives in Israel.
Abstract: The national origin of an individual's human capital is a crucial determinant of its value. Education and labor market experience acquired abroad are significantly less valued than human capital obtained domestically. This difference can fully explain the earnings disadvantage of immigrants relative to comparable natives in Israel. Variation in the return to foreign schooling across origin countries may reflect differences in its quality and compatibility with the host labor market. The return to foreign experience is generally insignificant. Acquiring additional education following immigration appears to confer a compound benefit by raising the return to education acquired abroad.
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TL;DR: This article found that African Americans who participated in Head Start are significantly less likely to have been charged or convicted of a crime and there are positive spillovers from older children who attended Head Start to their younger siblings.
Abstract: Little is known about the long-term effects of participation in Head Start. This paper draws on unique non-experimental data from the Panel Study of Income Dynamics to provide new evidence on the effects of participation in Head Start on schooling attainment, earnings, and criminal behavior. Among whites, participation in Head Start is associated with a significantly increased probability of completing high school and attending college, and we find some evidence of elevated earnings in one's early twenties. African Americans who participated in Head Start are significantly less likely to have been charged or convicted of a crime. The evidence also suggests that there are positive spillovers from older children who attended Head Start to their younger siblings.
TL;DR: This article found that inexperienced analysts are more likely to be terminated for inaccurate earnings forecasts than are their more experienced counterparts, and they are also less likely to issue timely forecasts and revise their forecasts more frequently.
Abstract: Several theories of reputation and herd behavior (e.g., Scharfstein and Stein (1990) and Zweibel (1995)) suggest that herding among agents should vary with career concerns. Our goal is to document whether such a link exists in the labor market for security analysts. We find that inexperienced analysts are more likely to be terminated for inaccurate earnings forecasts than are their more experienced counterparts. Controlling for forecast accuracy, they are also more likely to be terminated for bold forecasts that deviate from the consensus. Consistent with these implicit incentives, we find that inexperienced analysts deviate less from consensus forecasts. Additionally, inexperienced analysts are less likely to issue timely forecasts, and they revise their forecasts more frequently. These findings are broadly consistent with existing career concern motivated herding theories.
TL;DR: In this paper, the authors evaluate empirically the ability of two cross-sectional models, the Cross-Sectional Jones Model (CSJM) and the Cross Sectional Modified Jones Model, to detect earnings management vis-a-vis their time-series counterparts.
Abstract: The primary objective of this study is to evaluate empirically the ability of two cross-sectional models, the Cross-Sectional Jones Model and the Cross-Sectional Modified Jones Model, to detect earnings management vis-a-vis their time-series counterparts. The motivation follows because these two cross-sectional models have not been formally evaluated by prior research, and because their use offers substantial advantages to investors and researchers over their time-series counterparts. A secondary objective is to assess the robustness of findings of prior studies assessing discretionary-accruals models using our new sample and research method, which controls for potential research confounds. The evaluation involves examining the association between discretionary accruals and audit qualifications, using a sample of 166 distinct firms with qualified audit reports and a matched-pair control sample with clean audit reports. An association between large discretionary accruals generated by a model and an audit qualification provides evidence on the ability of the model to detect earnings management. Results from univariate tests that do not control for potential research confounds show that all models, except the DeAngelo Model, are consistently successful in discriminating between firms that manage earnings. Once potential research confounds are controlled, however, only the two cross-sectional models are able to detect earnings management. This last result, which highlights the importance of controlling for research confounds in earnings management studies using carefully selected samples, implies that the cross-sectional models are superior to their time-series counterparts. This finding is particularly important for future earnings management research because using a cross-sectional model rather than its time-series counterpart should result in a larger sample size that is less subject to a survivorship bias, and will also allow examining samples of firms with short history.
TL;DR: In this article, the authors hypothesize that the threat of expropriation by controlling owners in East Asian corporations lowers the credibility of accounting earnings and hence the stock price informativeness of those earnings.
Abstract: This paper hypothesizes that the threat of expropriation by controlling owners in East Asian corporations lowers the credibility of accounting earnings and hence the stock price informativeness of those earnings. The complicated share ownership structure of East Asian corporations, characterized by a voting control that is highly concentrated in the hands of families, and a large separation of their voting rights from cash flow rights, provides controlling owners with both the ability and incentive to expropriate minority shareholders. We document that the informativeness of earnings, measured by the earnings-return relation, decreases with the level of an ultimate owner's voting control and the extent to which the owner's voting rights exceed her cash flow rights. We also find that family control per se does not lower the informativeness of earnings. Earnings become less informative when controlling families maintain high voting power and large separation of voting from cash flow rights. Our results are generally robust to controls for firm size, market-to-book assets, leverage, number of industry segments operated by the firm, and to varying the starting and ending dates of the stock return window.
TL;DR: In this article, the authors test whether the observed patterns in stock returns after quarterly earnings announcements are related to the proportion of firm shares held by institutional investors, a variable used by prior research to proxy for investor sophistication.
Abstract: This study tests whether the observed patterns in stock returns after quarterly earnings announcements are related to the proportion of firm shares held by institutional investors, a variable used by prior research to proxy for investor sophistication. Our findings show that the institutional holdings variable is negatively correlated with the observed post‐announcement abnormal returns. Our findings also show that traditional proxies for transaction costs (i.e., trading volume, stock price) as well as firm size have little incremental power to explain post‐announcement abnormal returns when institutional holdings is an explanatory variable. If institutional ownership is a valid proxy for investor sophistication, these findings suggest that the trading activity of unsophisticated investors underlies the predictability of stock returns after earnings announcements. However, tests evaluating the validity of institutional holdings as a proxy for investor sophistication yield only mixed results. This calls fo...
TL;DR: The authors showed that the value relevance of financial reports is lower for countries where the financial systems are bank-oriented rather than market-oriented; where private sector bodies are not involved in standard setting process; where accounting practices follow the Continental model as opposed to the British-American model; where tax rules have a greater influence on financial accounting measurements; and where spending on auditing services is relatively low.
Abstract: Using financial accounting data from manufacturing firms in 16 countries for 1986-1995, we demonstrate that the value relevance of financial reports is lower for countries where the financial systems are bank-oriented rather than market-oriented; where private sector bodies are not involved in standard setting process; where accounting practices follow the Continental model as opposed to the British-American model; where tax rules have a greater influence on financial accounting measurements; and where spending on auditing services is relatively low. Results are robust to alternative measures of value relevance of financial accounting data, including measures based on earnings (using a regression and a hedge-portfolio approach), accruals, and earnings and book value of equity combined. We show that the extent to which earnings information is reflected in leading-period returns as compared to contemporaneous returns is greater for bank-oriented than for market-oriented countries. This feature potentially induces spurious associations between value relevance measures and financial system characteristics. Our results are robust to using value relevance measures adjusted for this confounding effect.
01 Jan 2000
TL;DR: This article used two recent UK surveys to investigate the determinants of language proficiency and the effect of language on earnings and employment probabilities of non-white immigrants, finding that language proficiency has a positive effect on employment probabilities, and lack of English fluency leads to earning losses.
Abstract: This paper uses two recent UK surveys to investigate the determinants of language proficiency and the effect of language on earnings and employment probabilities of non-white immigrants. We address the problem of endogenous choice of language acquisition and measurement error in language variables. Our results show that language acquisition, employment probabilities, as well as earnings differ widely across non-white immigrants, according to their ethnic origin. Language proficiency has a positive effect on employment probabilities, and lack of English fluency leads to earning losses.
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TL;DR: In this paper, the authors derived optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates, and implemented these formulas numerically using empirical earnings distributions and a range of realistic elasticity parameters.
Abstract: This paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates. A simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution. In the general non-linear income tax problem, this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of Mirrlees. The optimal non-linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution. These formulas are implemented numerically using empirical earnings distributions and a range of realistic elasticity parameters.
TL;DR: This article found that 38% of graduates were overeducated for their first job and, even six years later (1986), 30% of the sample were still overedocated, indicating that the return on surplus education is less than the return of required education.
TL;DR: In this article, the authors examined the relationship between owner and business characteristics and business survival and found that women's lower average wage earnings may imply more binding financial constraints on the initial scale of women's businesses relative to men's.
TL;DR: In this paper, the reliability of value estimates from the discounted dividend model, the discounted free cash flow model and the discounted abnormal earnings model was compared using a large sample of Val...
Abstract: This paper compares the reliability ofvalue estimates from the discounted dividend model, the discounted free cash flow model and the discounted abnormal earnings model. Using a large sample of Val ...
TL;DR: Li et al. as discussed by the authors examined the role of earnings management in the financial packaging of Chinese state-owned enterprises (SOEs) for public listing and found a statistically significant post-issue earnings decline for unprotected industry firms.
Abstract: This paper examines the earnings patterns of initial public offering (IPO) firms in China to shed light on the role of earnings management in the "financial packaging" of Chinese state-owned enterprises (SOEs) for public listing. We base our analysis on the case of B-Shares and H-Shares in China, two types of securities that now allow foreign investors to buy shares in SOEs previously wholly owned by the state. These IPOs mark the beginning of the stock market in China and signify an important step of Chinese economic reform. We examine the pre- and post-IPO earnings patterns for the entire sample, and separately for firms in protected vs. unprotected industries and for B-Shares vs. H-Shares. We find a statistically significant post-issue earnings decline for unprotected industry firms. This earnings decline is most significant for unprotected B-Share firms, and marginally significant for protected B-Share and unprotected H-Share firms, but not significant for protected H-Share firms. In addition, we find some evidence that the accounting accruals of sample firms in unprotected industries decline whereas their cash flows from operations increase after the IPO. Taken together, earnings management in the process of financial packaging seems to depend on the firm's relationship with the central government and on where the securities are listed. The evidence also suggests that the SOEs in unprotected industries may manage accounting accruals to boost earnings and/or list those business units with temporarily high profits resulting from high accounting accruals during the process of financial packaging.
TL;DR: In this article, the authors investigated high rates of self-employment among ethnic minorities in England and Wales using a framework in which the self-employment decision is influenced by ethnic-specific attributes as well as sectoral earnings differentials.
TL;DR: In this paper, the authors examine earnings management around seasoned equity offerings and, consistent with Rangan (J. Financial Econ. 50 (1998) 101) and Teoh et al., find evidence of earnings management.
TL;DR: The authors examined the earnings patterns of initial public offering (IPO) firms in China to shed light on the role of earnings management in the financial packaging of Chinese state-owned enterprises (SOEs) for public listing.
Abstract: This paper examines the earnings patterns of initial public offering (IPO) firms in China to shed light on the role of earnings management in the "financial packaging" of Chinese state-owned enterprises (SOEs) for public listing.1 Our sample contains the entire population of 83 Chinese SOEs that issued to foreign investors B-Shares in Chinese domestic stock exchanges or H-Shares in the Hong Kong stock exchange during
TL;DR: In this article, the authors examined whether the informativeness of earnings, proxied by the earnings-returns relationship, varies with the fraction of outside directors serving on the board and board size.
TL;DR: In this article, the authors test whether the association between board composition and earnings management activity differs between the pre- and post-Cadbury periods using a constant sample, and they find no evidence of an association between the degree of accrual management and the composition of the board of directors in the pre Cadbury period, while results for the post-cadbury period indicate less income-increasing acculal management to avoid earnings losses or earnings declines when the proportion of non-executive directors is high.
Abstract: Central to both the Cadbury Committee’s initial remit and its subsequent recommendations is the view that director integrity and board effectiveness play key roles in ensuring the quality and reliability of published financial statements. Using a constant sample, this paper tests whether the association between board composition and earnings management activity differs between the pre- and post-Cadbury periods. Earnings management is measured by the use of income-increasing abnormal accruals when unmanaged earnings undershoot target earnings. Results provide evidence of accrual management to meet earnings targets in both periods. However, while we find no evidence of an association between the degree of accrual management and the composition of the board of directors in the pre-Cadbury period, results for the post-Cadbury period indicate less income-increasing accrual management to avoid earnings losses or earnings declines when the proportion of non-executive directors is high. These results are consistent with the view that appropriately structured boards are discharging their financial reporting duties more effectively post-Cadbury.
TL;DR: The authors show that companies choose external performance standards when prior performance is a noisy estimate of contemporaneous performance, and that companies using budget based and other internally determined performance standards have less-variable bonus payouts, and are more likely to smooth earnings, than companies using externally determined standards.
TL;DR: This paper reviewed the economic context within which American families lived in the 1990s and found that despite nearly full employment and growing income and wealth for many Americans, persistent racial gaps in economic well-being, growing inequality, and declining wages for young men.
Abstract: This review documents the economic context within which American families lived in the 1990s. Despite nearly full employment and growing income and wealth for many Americans, problem areas included persistent racial gaps in economic well-being, growing inequality, and declining wages for young men. Women showed stronger income growth than men in the decade, and 2-earner households became increasingly associated with advantage. We review the consequences of these trends and of economic well-being generally on 4 dimensions of family outcomes: family formation, divorce, marital quality, and child well-being. Despite hypotheses suggesting that women's earnings might have different effects on family outcomes than men's earnings, generally the review supports the expectation that both men's and women's economic advantage is associated with more marriage, less divorce, more marital happiness, and greater child well-being. Important issues regarding measurement, reciprocal relations between family structure and economic well-being, and race and gender effects remain unresolved.