Showing papers on "Earnings published in 2011"

Skills, Tasks and Technologies: Implications for Employment and Earnings

Abstract: A central organizing framework of the voluminous recent literature studying changes in the returns to skills and the evolution of earnings inequality is what we refer to as the canonical model, which elegantly and powerfully operationalizes the supply and demand for skills by assuming two distinct skill groups that perform two different and imperfectly substitutable tasks or produce two imperfectly substitutable goods. Technology is assumed to take a factor-augmenting form, which, by complementing either high or low skill workers, can generate skill biased demand shifts. In this paper, we argue that despite its notable successes, the canonical model is largely silent on a number of central empirical developments of the last three decades, including: ( 1 ) significant declines in real wages of low skill workers, particularly low skill males; ( 2 ) non-monotone changes in wages at different parts of the earnings distribution during different decades; ( 3 ) broad-based increases in employment in high skill and low skill occupations relative to middle skilled occupations (i.e., job “polarization’’); ( 4 ) rapid diffusion of new technologies that directly substitute capital for labor in tasks previously performed by moderately skilled workers; and ( 5 ) expanding offshoring in opportunities, enabled by technology, which allow foreign labor to substitute for domestic workers specific tasks. Motivated by these patterns, we argue that it is valuable to consider a richer framework for analyzing how recent changes in the earnings and employment distribution in the United States and other advanced economies are shaped by the interactions among worker skills, job tasks, evolving technologies, and shifting trading opportunities. We propose a tractable task-based model in which the assignment of skills to tasks is endogenous and technical change may involve the substitution of machines for certain tasks previously performed by labor. We further consider how the evolution of technology in this task-based setting may be endogenized. We show how such a framework can be used to interpret several central recent trends, and we also suggest further directions for empirical exploration.

Evidence on the Trade-Off between Real Activities Manipulation and Accrual-Based Earnings Management

Abstract: I study whether managers use real activities manipulation and accrual-based earnings management as substitutes in managing earnings. I find that managers trade off the two earnings management methods based on their relative costs and that managers adjust the level of accrual-based earnings management according to the level of real activities manipulation realized. Using an empirical model that incorporates the costs associated with the two earnings management methods and captures managers’ sequential decisions, I document large sample evidence consistent with managers using real activities manipulation and accrual-based earnings management as substitutes.

How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star

Abstract: In Project STAR, 11,571 students in Tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade. This article evaluates the long-term impacts of STAR by linking the experimental data to administrative records. We first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27, college attendance, home ownership, and retirement savings. We then document four sets of experimental impacts. First, students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes. Class size does not have a significant effect on earnings at age 27, but this effect is imprecisely estimated. Second, students who had a more experienced teacher in kindergarten have higher earnings. Third, an analysis of variance reveals significant classroom effects on earnings. Students who were randomly assigned to higher quality classrooms in grades K–3—as measured by classmates' end-of-class test scores—have higher earnings, college attendance rates, and other outcomes. Finally, the effects of class quality fade out on test scores in later grades, but gains in noncognitive measures persist.

Analyst's forecasts as earnings expectations

Abstract: I examine three composite analyst forecast of earnings per share as proxies for expected earnings. The most current forecast weakly dominates the mean and median forecasts in accuracy. This is evidence that forecast dates are more relevant for determining accuracy than individual error. Consistent with previous research, I find analysts more accurate than time-series models. However prior knowledge of forecast errors from a quarterly autoregressive model predicts excess stock returns better than prior knowledge of analysts' errors. This is inconsistent with previous research, and is anomalous given analysts' greater accuracy.

The Effects of Rural Electrification on Employment: New Evidence from South Africa

Abstract: This paper estimates the impact of electrification on employment growth by analyzing South Africa 's mass roll-out of electricity to rural households Using several new data sources and two different identification strategies (an instrumental variables strategy and a fixed effects approach ), I find that electrification significantly raises female employment within five years This new infrastructure appears to increase hours of work for men and women, while reducing female wages and increasing male earnings Several pieces of evidence suggest that household electrification raises employment by releasing women from home production and enabling microenterprises Migration behavior may also be affected (JEL H54, L94,

How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star

Abstract: In Project STAR, 11,571 students in Tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade This article evaluates the long-term impacts of STAR by linking the experimental data to administrative records We first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27, college attendance, home ownership, and retirement savings We then document four sets of experimental impacts First, students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes Class size does not have a significant effect on earnings at age 27, but this effect is imprecisely estimated Second, students who had a more experienced teacher in kindergarten have higher earnings Third, an analysis of variance reveals significant classroom effects on earnings Students who were randomly assigned to higher quality classrooms in grades K–3—as measured by classmates' end-of-class test scores—have higher earnings, college attendance rates, and other outcomes Finally, the effects of class quality fade out on test scores in later grades, but gains in noncognitive measures persist

The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts

Abstract: This study examines the effect of the readability of firms’ written communication on the behavior of sell-side financial analysts. Using a measure of the readability of corporate 10-K filings, we document that analyst following, the amount of effort incurred to generate their reports, and the informativeness of their reports are greater for firms with less readable 10-Ks. Additionally, we find that less readable 10-Ks are associated with greater dispersion, lower accuracy, and greater overall uncertainty in analyst earnings forecasts. Overall, our results are consistent with the prediction of an increasing demand for analyst services for firms with less readable communication and a greater collective effort by analysts for firms with less readable disclosures. Our results contribute to the understanding of the role of analysts as information intermediaries for investors and the effect of the complexity of written financial communication on the usefulness of this information.

The Causal Impact of Media in Financial Markets

Abstract: Disentangling the causal impact of media reporting from the impact of the events being reported is challenging. We solve this problem by comparing the behaviors of investors with access to different media coverage of the same information event. We use zip codes to identify 19 mutually exclusive trading regions corresponding with large U.S. cities. For all earnings announcements of S&P 500 Index firms, we find that local media coverage strongly predicts local trading, after controlling for earnings, investor, and newspaper characteristics. Moreover, local trading is strongly related to the timing of local reporting, a particular challenge to nonmedia explanations.

Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets

Abstract: Prior research shows that financial reporting quality (FRQ) is positively related to investment efficiency for large U.S. publicly traded companies. We examine the role of FRQ in private firms from emerging markets, a setting in which extant research suggests that FRQ would be less conducive to the mitigation of investment inefficiencies. Earlier studies show that private firms have lower FRQ, presumably because of lower market demand for public information. Prior research also shows that FRQ is lower in countries with low investor protection, bank-oriented financial systems, and stronger conformity between tax and financial reporting rules. Using firm-level data from the World Bank, our empirical evidence suggests that FRQ positively affects investment efficiency. We further find that the relation between FRQ and investment efficiency is increasing in bank financing and decreasing in incentives to minimize earnings for tax purposes. Such a connection between tax-minimization incentives and the...

The Impact of Religion on Financial Reporting Irregularities

Abstract: This paper examines the impact of religion on financial reporting. We predict that firms in religious areas are less likely to engage in financial reporting irregularities because prior research links religiosity to reduced acceptance of unethical business practices and because managers in religious areas are likely to be more averse to litigation risk. Our results suggest that firms headquartered in areas with strong religious social norms generally experience lower incidences of financial reporting irregularities. We also examine whether religiosity influences managers’ methods of managing earnings. Although we find a negative association between religiosity and abnormal accruals, we find a positive association between religiosity and two measures of real earnings management, suggesting managers in religious areas may prefer real earnings management over accruals manipulation. We provide evidence that our results are not driven by firms headquartered in rural areas and conclude that religious social norms represent a mechanism for reducing costly agency conflicts, particularly when other external monitoring is low.

Job duration, seniority, and earnings

Abstract: The stylized fact that seniority and earnings in a cross-section are positively related, even after controlling for total labor market experience, has served as the basis for theoretical analyses of implicit labor contracts suggesting that workers post bonds in the form of deferred compensation in order to ensure their continued performance at an adequate level. An alternative interpretation is that good workers or workers in good jobs or good matches both earn more throughout the job and have longer job durations. Another stylized fact, that labor market experience and earnings in a cross section are positively related, has been taken as evidence of the importance of general human capital accumulation. An alternative interpretation of this evidence is that workers with more experience have had more time to find good jobs and/or good matches, resulting in higher earnings. Earnings functions are estimated including a measure of the completed duration of jobs in order to distinguish between the competing hypotheses regarding both seniority and experience. These yield three main results. First, workers in longer jobs earn significantly more in every year of the job than do workers in shorter jobs. Second, controlling for completed job duration eliminates most of the apparent return to seniority found in standard cross-section models. Thus, it appears that implicit contracts that provide for workers posting bonds through deferred wage payments are less important than has been believed. Third, for blue collar workers there is evidence thata part of the small observed (cross-sectional) return to labor market experience is due to sorting of workers into better jobs over time. There is no evidence of sorting for white collar workers.

The Information Content of Annual Earnings Announcements and Mandatory Adoption of IFRS

Abstract: This study examines whether the information content of earnings announcements--abnormal return volatility and abnormal trading volume -- increases in countries following mandatory IFRS adoption, and conditions and mechanisms through which increases occur. Findings suggest information content increased in 16 countries that mandated adoption of IFRS relative to 11 that maintained domestic accounting standards, although the effect of mandatory IFRS adoption depends on the strength of legal enforcement in the adopting country. Utilizing a path analysis methodology, we find evidence of three mechanisms through which IFRS adoption increases information content: reducing reporting lag, increasing analyst following, and increasing foreign investment.

Sources of Lifetime Inequality

Abstract: Is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime? We answer this question within a model that features idiosyncratic shocks to human capital , estimated directly from data, as well as heterogeneity in ability to learn, initial human capital, and initial wealth. We find that, as of age 23, differences in initial conditions account for more of the variation in lifetime earnings, lifetime wealth, and lifetime utility than do differences in shocks received over the working lifetime. ( JEL D31, D91, J24, J31) To what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime? Among the individual differences established early in life, which ones are the most important? A convincing answer to these questions is of fundamental importance. First, and most simply, an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions (e.g., public education) against those directed at shocks over the working lifetime (e.g., unemployment insurance). Second, a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life. Third, a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics, public finance, and labor economics. We view lifetime inequality through the lens of a risky human capital model. Agents differ in terms of three initial conditions: initial human capital, learning ability, and financial wealth. Initial human capital can be viewed as controlling the intercept of an agent's mean earnings profile, whereas learning ability acts to rotate

Is a College Degree Still the Great Equalizer? Intergenerational Mobility across Levels of Schooling in the United States1

Abstract: A quarter century ago, an important finding in stratification research showed that the intergenerational occupational association was much weaker among college graduates than among those with lower levels of education. This article provides a comprehensive assessment of the “meritocratic power” of a college degree. Drawing on five longitudinal data sets, the author analyzes intergenerational mobility in terms of class, occupational status, earnings, and household income for men and women. Findings indicate that the intergenerational association is strong among those with low educational attainment; it weakens or disappears among bachelor’s degree holders but reemerges among those with advanced degrees, leading to a U-shaped pattern of parental influence. Educational and labor market factors explain these differences in mobility: parental resources influence college selectivity, field of study, and earnings more strongly for advanced-degree holders than for those with a bachelor’s degree alone.

The Structure of Inequality and the Politics of Redistribution

Abstract: Against the current consensus among comparative political economists, we argue that inequality matters for redistributive politics in advanced capitalist societies, but it is the structure of inequality, not the level of inequality, that matters. Our theory posits that middle-income voters will be inclined to ally with low-income voters and support redistributive policies when the distance between the middle and the poor is small relative to the distance between the middle and the rich. We test this proposition with data from 15 to 18 advanced democracies and find that both redistribution and nonelderly social spending increase as the dispersion of earnings in the upper half of the distribution increases relative to the dispersion of earnings in the lower half of the distribution. In addition, we present survey evidence on preferences for redistribution among middle-income voters that is consistent with our theory and regression results indicating that the left parties are more likely to participate in government when the structure of inequality is characterized by skew.

The Implied Cost of Capital: A New Approach

Abstract: We use earnings forecasts from a cross-sectional model to proxy for cash flow expectations and estimate the implied cost of capital (ICC) for a large sample of firms over 1968-2008. The earnings forecasts generated by the cross-sectional model are superior to analysts’ forecasts in terms of coverage, forecast bias, and earnings response coefficient. Moreover, the model-based ICC is a more reliable proxy for expected returns than the ICC based on analysts’ forecasts. We present evidence on the cross-sectional relation between firm-level characteristics and ex ante expected returns using the model-based ICC.

Recessions and the Costs of Job Loss

Abstract: We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records from 1974 to 2008. In present-value terms, men lose an average of 1.4 years of predisplacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of predisplacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5 percent annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts, and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present-value earnings losses associated with job displacement. The 1994 model of Dale Mortensen and Christopher Pissarides, extended to include search on the job, generates present-value losses that are only one-fourth as large as observed losses. Moreover, present-value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data.

The Labor Market Returns to Cognitive and Noncognitive Ability: Evidence from the Swedish Enlistment

Abstract: sonal interview conducted by a psychologist. We find strong evidence that men who fare poorly in the labor market—in the sense of unemployment or low annual earnings—lack noncognitive rather than cognitive ability. However, cognitive ability is a stronger predictor of wages for skilled workers and of earnings above the median. (JEL J24, J31, J45)

CEO ability and management earnings forecasts

Abstract: We examine the relation between CEO ability and management earnings forecasts. Trueman (1986) theorizes that high ability managers use forecasts to...

The polarization of job opportunities in the U.S. labor market: implications for employment and earnings

Abstract: An in-depth analysis of the state of the US labor market over the past three decades reveals that the US labor market is polarizing into low- and high-skill jobs, with fewer opportunities in the middle

The impact of work-family policies on women's employment: a review of research from OECD countries

Abstract: All industrialized countries, as well as many developing and transition countries, have policies in place to support work-family reconciliation such as care-related leaves, policies that increase the quality or availability of flexible and alternative work arrangements, and childcare supports. While work-family policies share common elements across borders, the extent and nature of supports vary widely across countries. This cross-national diversity in policies has supported a substantial body of research on the effect of different policy designs on women's labor market outcomes and, increasingly, on men's take-up of work-family provisions. The purpose of this paper is to provide an overview of this research and to draw out implications in terms of policy designs that seem to maximize women's labor force participation, narrow the gender gap in earnings, and increase men's participation in caregiving at home. The paper reviews the research literature on leave policies, flexible and/or alternative work arra...

The Power of Voice: Managerial Affective States and Future Firm Performance

Abstract: We measure managerial affective states during earnings conference calls by analyzing conference call audio files using vocal emotion analysis software. We hypothesize and find that when managers are scrutinized by analysts during conference calls, positive and negative affect displayed by managers are informative about the firm’s financial future. In particular, we find that positive (negative) managerial affect is positively (negatively) related to contemporaneous stock returns and future unexpected earnings. However, analysts do not incorporate the information when forecasting near term earnings. When making stock recommendation changes, however, analysts do incorporate positive affect but not negative affect. We observe market underreaction to negative affect as if market participants follow analyst recommendation changes. This study presents new evidence that managerial vocal cues contain useful information about firms’ fundamentals, incremental to both quantitative earnings information and qualitative “soft” information conveyed by the linguistic content.