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Many investors are motivated by passive income. Dividend income-seeking strategies have a long history. More recently, interest in derivative income strategies—such as covered calls and put underwriting—continues to develop. Do high derivative income-covered calls tend to deliver higher total returns? No. In fact, the relationship goes the other way. The authors demonstrate a strong negative mechanical relationship between expected total return and derivative income for covered-call strategies. They empirically validate this relationship over a nearly 25-year period on S&P 500 covered-call strategies. Those who have sought out and allocated to such strategies without accounting for this trade-off might have made a devil's bargain. [ABSTRACT FROM AUTHOR]

Corporate governance remains the focus of current research and a concept that continues to evolve to meet the needs of business managers. Faced with the need for companies to cope with a world characterized by perpetual change and successive economic crises (Prowse in Revue d'économie financière 31:119–158, 1994), the identification of the results of the implementation of good governance mechanisms in the structure of the management of companies on financial performance remains a necessity that helps managers and researchers specialized in management sciences and financial accounting to have a better visibility on the importance of corporate governance. It should be mentioned that the economic environment and the characteristics of the sectors of activity of the companies remain a relevant criterion in the study of the relation between the governance of the companies and their financial performance. In this sense, we have tried through this research work to study the impact of the implementation of effective corporate governance on the financial performance of 160 companies in the UK between 2005 and 2018 while taking into account the specificity of the business sectors. Through our study, we used multivariate regressions based on FGLS models while dividing our sample to several clusters. As a result, we found that the implementation of good corporate governance leads to the improvement of the financial performance of companies measured by the return on equity. As a motivation, it must be said that this study can be of major importance for future studies that want to make comparisons on the sectoral and temporal level. Indeed, this study gives the possibility for future research work to make comparative studies based on comparisons for different sectors of activity in the UK before and after the Brexit and also after the COVID 19 period. [ABSTRACT FROM AUTHOR]

There is evidence that a change in accounting regulation can stimulate global access to a country's capital market, thereby increase financial performance of firms. Corresponding to the change from the Generally Accepted Accounting Principles (GAAP) to the mandatory adoption of the International Financial Reporting Standards (IFRS) in Nigeria, this paper examines available information in order to confirm whether the change has created desired improvement in the firms' performance after the adoption in 2012. Three financial performance indicators related to productivity (asset turnover, ATO) and profitability (returns on assets, ROA, and return on equity, ROE) are examined on univariate tests of significance differences in the mean, median and variance of sample for the 'prior to' IFRS adoption period (2003-2011) and the post-IFRS adoption period (2012-2020). Accordingly, the Satterthwaite-Welch t-test, Wilcoxon/Mann-Whitney t-test and ANOVA-F-test are applied for the mean, median and variance, to verify the conjectured hypotheses. The results find that slight increase was perceived after adoption for average value of the ATO and ROA, but the considered tests are unable to indicate sufficient evidence to identify the improvement as significant. Contrary, the evidence supposes undesired significant decline in the ROE. The evidence finds the change in the variability, due to the transition to IFRS, for the indicators as significant. The findings have implications for the capital market and regulation; hence, the paper suggests that regulators should monitor firms' compliance to the standards and extend the use of IFRS to other non-listed companies in Nigeria. [ABSTRACT FROM AUTHOR]

A consensus has recently emerged that variables beyond the level, slope, and curvature of the yield curve can help predict bond returns. This paper shows that the statistical tests underlying this evidence are subject to serious small-sample distortions. We propose more robust tests, including a novel bootstrap procedure specifically designed to test the spanning hypothesis. We revisit the analysis in six published studies and find that the evidence against the spanning hypothesis is much weaker than it originally appeared. Our results pose a serious challenge to the prevailing consensus. [ABSTRACT FROM AUTHOR]

This article investigates whether fundamental volatility information is appropriately priced in the options market. We find that fundamental signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical stock volatility, suggesting that the options market does not fully incorporate fundamental information into option prices. Transaction costs substantially reduce the overall profitability of hedge strategies that exploit only the fundamental volatility information in these accounting signals; however, fundamental signals provide a useful complement for strategies based on historical volatility. [ABSTRACT FROM AUTHOR]

Although many studies show that the presence of institutional investors facilitates the incorporation of accounting information into financial markets, the evidence of informed trading by institutions is rather limited in the extant literature. We address these inconsistent findings by proposing PC_ NII, percentage changes in the number of a stock's institutional investors, as a novel informed trading measure. PC_ NII is better able to detect informed trading than are changes in institutional ownership ( Δ IO)-the measure commonly used in previous studies-because (i) entries and exits are usually triggered by substantive private information and (ii) only a small fraction of institutions have superior information. As conjectured, PC_ NII subsumes the information content of Δ IO and other institutional trading and herding measures in the forecast of stock returns, and its strong predictive power for stock returns reflects mainly its close correlation with future earnings surprises. We also show that PC_ NII helps address empirical issues that require a reliable measure of institutional informed trading. [ABSTRACT FROM AUTHOR]

Anecdotal evidence suggests widespread discrimination against community college transfer students, despite their prevalence among bachelor's degree holders in the US. I send out fictitious job applications and conduct a labor market audit study to examine such discrimination. All applicants have bachelor's degrees, and a random subset are transfer students who attended community colleges for their first two years of college. I find that, for accounting jobs, community college experience significantly reduces callback rates and undermines the value of graduating from selective four-year colleges. In comparison, sales and marketing firms do not exhibit signs of discrimination. • Audit study shows a lower callback rate for community college transfer students. • Accounting firms discriminate against community college transfers vs non-transfers. • The discrimination undermines valuation of college selectivity. • Sales and marketing firms do not exhibit signs of discrimination. [ABSTRACT FROM AUTHOR]

Measuring and understanding the evolution of wealth inequality is a key challenge for researchers, policy makers, and the general public. This paper breaks new ground on this topic by presenting a new method to estimate and study wealth inequality. This method combines fiscal data with household surveys and national accounts in order to provide annual wealth distribution series, with detailed breakdowns by percentiles, age, and assets. Using the case of France as an illustration, we show that the resulting series can be used to better analyze the evolution and the determinants of wealth-inequality dynamics over the 1970–2014 period. We show that the decline in wealth inequality ends in the early 1980s, marking the beginning of a rise in the top 1% wealth share, though with significant fluctuations due largely to asset price movements. Rising inequality in savings rates coupled with highly stratified rates of returns has led to rising wealth concentration in spite of the opposing effect of house price increases. We develop a simple simulation model highlighting how changes in the combination of unequal savings rates, rates of return, and labor earnings that occurred in the early 1980s generated large multiplicative effects that led to radically different steady-state levels of wealth inequality. Taking advantage of the joint distribution of income and wealth, we show that top wealth holders are almost exclusively top capital earners, and increasingly fewer are made up of top labor earners; it has become increasingly difficult in recent decades to access top wealth groups with one's labor income only. [ABSTRACT FROM AUTHOR]

The article discusses the paper titled "The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers" by M. A. Abernethy, J. Bouwens and L. van Lent (ABvL). With this paper, ABvL found that the weight placed on accounting return measures in the annual performance evaluation of the business unit manager is associated with a longer term focus. The author argues that an accounting return measure is being considered as any measure that signals to the business unit manager that the senior management is concern about investment returns.

When managing risk, frequently only imperfect hedging instruments are at hand. We show how to optimally cross-hedge risk when the spread between the hedging instrument and the risk is stationary. For linear risk positions we derive explicit formulas for the hedge error, and for nonlinear positions we show how to obtain numerically efficient estimates. Finally, we demonstrate that even in cases with no clear-cut decision concerning the stationarity of the spread, it is better to allow for mean reversion of the spread rather than to neglect it. [ABSTRACT FROM PUBLISHER]

We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements, (2) there is a bond-price reaction to the announcement of earnings, and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market. [ABSTRACT FROM AUTHOR]

This paper starts with the premise that marketing should be accountable, and considers by which measure or measures it should be held to account. "Marketing" for the purposes of this paper is defined as satisfying customers and thereby maximising net inward cash flow. This suggests that marketing performance can and should be evaluated financially, ideally with a single number, or "silver metric". The authors review the arguments for and against silver metrics in general and, in particular, three popular candidates: ROI, Discounted Cash Flow (DCF) and Return on Customer. So far as performance evaluation is concerned, six objections to the use of ROI, five to the use of DCF and four to Return on Customer are identified. Furthermore, the authors highlight the critical and potentially misleading role of forecasts as benchmarks for performance assessment. At the same time, the value of DCF techniques, such as customer equity and customer lifetime value, is recognised for planning purposes. A more satisfactory means for assessing marketing performance is net profit plus any enhancement of the marketing asset albeit that requires multiple metrics, taken together as a proxy for future cash flows. [ABSTRACT FROM AUTHOR]

Recent literature has used analysts' earnings forecasts, which are known to be optimistic, to estimate implied expected rates of return, yielding upwardly biased estimates. We estimate that the bias, computed as the difference between the estimates of the implied expected rate of return based on analysts' earnings forecasts and estimates based on current earnings realizations, is 2.84%. The importance of this bias is illustrated by the fact that several extant studies estimate an equity premium in the vicinity of 3%, which would be eliminated by the removal of the bias. We illustrate the point that cross-sample differences in the bias may lead to the erroneous conclusion that cost of capital differs across these samples by showing that analysts' optimism, and hence, bias in the implied estimates of the expected rate of return, differs with firm size and with analysts' recommendation. As an important aside, we show that the bias in a value-weighted estimate of the implied equity premium is 1.60% and that the unbiased value-weighted estimate of this premium is 4.43%. [ABSTRACT FROM AUTHOR]

This article applies the methodology of Bai and Ng (2002, 2004). for decomposing panel data into systematic and idiosyncratic components to both stock returns and turnover panels. This approach works well for both returns and turnover, despite the presence of severe heteroscedasticity and nonstationarity of individual stocks' turnover. We test the mutual fund separation model of Lo and Wang (2000). Trading due to systematic risk in returns can account for 66% of systematic turnover. Thus, portfolio rebalancing due to systematic risk is a very important motive for stock trading. Finally, several common turnover measures may understate the impact of stock trading. [ABSTRACT FROM AUTHOR]

This paper studies the allocational effects associated with the precision of accounting estimates when the precision of estimates is a choice variable for firms. One part of the paper considers the effects of the observability of precision choices. We show that, generally, making precision choices private increases firms' equilibrium precision choices and also, as a by-product, their equilibrium investment choices. We further show that, when firms' precision choices are private, there may be a “disclosure trap,” in which, unless investors conjecture the owner has chosen an estimate with the highest possible precision, the owner will respond to investors' conjecture by choosing an estimate whose precision is higher than investors' conjecture. In a multifirm version of the model with endogenous investment, we show that the equilibrium investment by the firm increases in the precision of the firm's own estimate and decreases in the precisions of other firms' estimates. Finally, we show that, in a setting where the firm's initial owner sells his stake in the firm over the course of two periods, with disclosures of estimates of the firm's value occurring prior to each sale of shares, if the precisions of the estimates are public, the equilibrium precisions of the estimates increase over time when the owner sells a sufficiently large fraction of the firm in the first period, and otherwise the equilibrium precisions of estimates remain constant over time. [ABSTRACT FROM AUTHOR]

Using a sample of 140 managers, we investigate the use of various performance metrics in determining the periodic assessment, bonus decisions, and career paths of business unit managers. We show that the weight on accounting return measures is associated with the authority of these managers, and we document that both disaggregated measures (expenses and revenues), and nonfinancial measures play a greater role as interdependencies between business units increase. The results suggest separate and distinct roles for different types of performance measures. Accounting return measures are used to create the proper incentives for managers with greater authority, while disaggregated and nonfinancial measures are employed in response to interdependencies. [ABSTRACT FROM AUTHOR]

Abarbanell and Lehavy (2007) examine the effect of distributional properties of earnings and forecast data used by researchers who investigate Street earnings. They perform a large number of analyses and emphasize that care must be taken in using these data to draw inferences about the incentives and behaviors of managers, analysts, and investors. The authors highlight three features of the distributional properties of Street earnings data. which are that (a) differences between Street and generally accepted accounting principles (GAAP) earnings are large with asymmetric tails, (b) a shift in the distribution of Street earnings occurred around 1991, and (c) a large number of firm-quarter observations exhibit zero differences between GAAP and Street earnings. We first view the paper as a methodological paper and then discuss how the analysis contributes to similarly focused papers that address other streams of research. From this perspective, the cautionary message conveyed is very important. Second, we examine how the paper fits into the Street earnings literature. We arrive at less alarming conclusions than the authors about the degree to which prior research has not appreciated the limitations of empirical methods in permitting strong conclusions. Finally, we offer several observations on the implications of certain analyses in the paper. Overall, the authors are to be applauded for their efforts to maintain a high standard in empirical accounting research. [ABSTRACT FROM AUTHOR]

Recent studies in the accounting literature provide evidence of an equity price premium whenever firms meet or exceed analysts' earnings forecasts. That is, the market perceives the act of meeting earnings forecasts as a signal about future firm performance. Financial analysts typically issue revenue forecasts in addition to earnings forecasts. In this study, we examine whether meeting or exceeding revenue forecasts serves as an additional signal to the market in pricing earnings performance. Consistent with our hypotheses, we show that the market premium (penalty) to meeting or beating (not meeting) earnings forecasts is accentuated when revenue forecasts are also met (not met). In fact, the premium to meeting earnings forecasts is completely eliminated when revenue forecasts are missed. Consistent with previous research, we document a significant association between revenue forecast errors and quarterly abnormal returns. However, we show that this association becomes insignificant after allowing for shifts in the equity price premium depending on whether earnings and revenue forecasts are met. Thus, the value of meeting revenue forecasts is arguably of greater importance to market participants than the magnitude of the revenue forecast error. Finally, we find some evidence that the magnitude of the earnings response coefficient jointly depends on whether the earnings and revenue forecasts are met or not; however, this result is not robust to a nonlinear specification of the association between rectums and forecast errors. [ABSTRACT FROM AUTHOR]

Under the 1996-98 security regulations in China, the accounting rate of return on equity (ROE) has to be greater than 10 percent for three "consecutive" years for a firm to qualify for stock rights offers. Despite declining economic conditions during this period, the percentage of firms reporting ROE between 10 and 11 percent is about "three" times that for 1994-95. This unique regulatory environment provides a natural experimental setting for the empirical assessment of earnings-management behavior and its consequences. This study examines whether listed Chinese firms manage earnings to meet regulatory benchmarks and whether regulators and investors consider the quality of earnings in their respective regulatory and investment decisions. On the basis of a sample of listed Chinese firms from 1996 to 1998. we observe that managers execute transactions involving below-the-line items and use income-increasing accounting accruals to meet regulatory ROE targets for stock rights offerings. The firms that apply for, but fail to receive, regulatory approval manage earnings more significantly than do firms that receive approval and pair-matched control firms. Our market study also suggests that investors differentiate the quality of earnings and put less value on earnings suspected of a greater degree of management. Overall, our results imply that the regulatory bodies and investors to some extent make rational adjustments for the quality of earnings. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures "bring the future forward" so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm's disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price. [ABSTRACT FROM AUTHOR]

This paper provides a theoretical explanation and consistent empirical evidence for the increase in the contemporaneous correlation between returns and aggregate earnings as the return interval is lengthened. Consistent with intuition and with Easton, Harris, and Ohlson 1992, the analysis shows that aggregation over time renders the lag in accounting recognition relatively less important and thus improves the returns-earnings R². Interestingly, the analysis also reveals that aggregating earnings over longer periods increases the positive covariance between aggregate earnings and the accounting lag, which may further increase the R². This positive covariance can lead to an earnings coefficient greater than one over some range of aggregation, which is consistent with the findings of Easton et al. that over the 10-year interval the returns-earnings regression slope coefficient is greater than one (1.7). The empirical results highlight the fact that the slope coefficient, which is greater than one and increasing with the interval, accounts for much of the increment to the returns-earnings R². In fact, constraining the slope coefficient to be one results in an R² of 11 percent for the 10-year interval, which is considerably lower than the R² of 47 percent when the regression is unconstrained. Hence, the positive covariance between current earnings and the accounting lag, rather than the diminishing effect of the accounting lag, appears to be the dominant explanation for the observed high R² over long intervals. [ABSTRACT FROM AUTHOR]

We examine whether stock prices fully value firms' intangible assets, specifically research and development (R&D). Under current U.S. accounting standards, financial statements do not report intangible assets and R&D spending is expensed. Nonetheless, the average historical stock returns of firms doing R&D matches the returns of firms without R&D. However, the market is apparently too pessimistic about beaten-down R&D-intensive technology stocks' prospects. Companies with high R&D to equity market value (which tend to have poor past returns) earn large excess returns. A similar relation exists between advertising and stock returns. R&D intensity is positively associated with return volatility. [ABSTRACT FROM AUTHOR]

The article derives and tests a relation between current-period unexpected returns and unexpected earnings that incorporates revisions in forecasts of future earnings. The main implication of the author's study is that inferences based on the simple regressions estimated in prior literature should be reexamined. A related implication is that the ability of accounting earnings to explain stock returns is unaffected by accounting choices. The results also offer some evidence on whether or not stock prices exhibit excess volatility.

The traditional DuPont Analysis, first used almost 100 years back, decomposes Return on Equity (ROE) as a means to explain changes in investor returns. We propose using instead Return on Market Equity (ROME), to incorporate an additional component into the traditional DuPont Analysis-the book-to-market ratio, a proxy for a firm's level of intangible assets which while valued by the market may not appear on corporate balance sheets. We demonstrate that firms 'assets are becoming increasing more intangible, and the traditional DuPont Analysis omits this crucial piece of a firm's ability to generate profit. We illustrate how the ROME is a more effective measure of investor returns for a number of firms and industry sectors. This updated DuPont Analysis makes understanding investor returns more meaningful for students in finance and accounting courses, and is more relevant to analysts and investors. [ABSTRACT FROM AUTHOR]

The paper covers the analysis of project finance, one of the most effective mechanisms for attracting investments to implement major, complex and expensive projects under high risks and uncertainty. The notion of ‘project finance’ and its key features were redefined by analyzing scientific publications, research carried out by experts and international economic organizations. It was demonstrated that a risk management system, identifying and sharing risks among its participants and assuming the presence of an appropriate security and guarantee package, is an integral element of project finance system. Project finance is characterized by a large number of stakeholders, necessitating organization of an effective system for managing their interests and contracts. Project finance involves a comprehensive analysis, the level of detail of which depends on project scale, possible risks, and social and economic impacts of management decisions. The advantages and disadvantages of project finance were determined in comparison with other financing models with regard to the interests of their participants. A significant share of global project finance market accounts for infrastructure projects, as well as projects in oil and gas production, involving both developed and developing countries. Modern project finance market is characterized by the decreasing share of public funds in financing of major infrastructure projects, including based on PPP principles, continuously improving the mechanism for attracting new sources of financing (infrastructure bonds, etc.). In the Russian economy, project finance is mainly used in large investment projects in oil and gas production, transport infrastructure, electric power industry, etc. Many of these projects are implemented based on PPP mechanism, allowing not only getting the financial resources required, but also increasing the efficiency of utilizing state budget funds, applying advanced production, information and management technologies, professional competencies and skills of private partners, and reducing entrepreneurial investment risks. Effective interaction between the state and private businesses is based on sound legislative base, proven bureaucracy, reasonable return on investment rates, acceptable project payback periods for public and private partners. The research involved analysis and synthesis, comparison, classification, as well as logical and statistical analysis methods. [ABSTRACT FROM AUTHOR]

Copyright of Polish Journal of Management Studies is the property of Czestochowa University of Technology, Faculty of Management and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Abstract: We examine the predictive ability of three competing sources of financial information—rating changes, profit changes, and excess stock returns. We find the following significant relations between current and lagged values of these three endogenous variables: (1) rating changes are positively related to past excess stock returns, (2) profit changes are positively related to past excess stock returns, and (3) profit changes and excess stock returns are mean reverting. In addition, profit changes are substantially more predictable than rating changes or excess stock returns, and past values of profit changes account for most of the observed ability to predict current profit changes. In contrast, past profit changes have little predictive ability in relation to excess stock returns or rating changes. [ABSTRACT FROM AUTHOR]

The authors investigate whether movement in a firm's stock price, that is, a measure of firm value, is associated with information contained in perceived quality measures. In a model that also allows for the effect of economywide factors and a firm's return on investment, they find a positive relationship between stock return and changes in quality perceptions. These results imply that the quality measure contains information, incremental to that reflected by current-term accounting measures, about future-term business performance. They suggest that managers should convey information to the stock market, such as the brand's quality image, useful in depicting the long-term prospects of the business. By doing so, the stock market will rely less on short-term measures of business performance, and managers will be freer to undertake strategies necessary for ensuring the long-term viability of their firms. [ABSTRACT FROM AUTHOR]

The article discusses ways of measuring the benefits of corporate philanthropy. The underlying strategy for many firms is for companies to obtain a tangible return for their charitable contributions. Some businesses have developed a series of cost/benefit analyses to determine long-term returns on philanthropy efforts. The Shell Oil company has identified several social performance planning areas within its strategic management plan. The object is to be responsive to public demands in a proactive rather than a reactive way.

This article surveys the available empirical evidence assessing merger performance; its conclusions are important to the senior management of both potential acquirers and firms seeking to be acquired. The authors examine relative gains to the merging units, changes in their risk characteristics, and changes in the operating results of the merging firms. [ABSTRACT FROM AUTHOR]

It is commonly argued that some Japanese firms enjoy lower capital costs than their U.S. counterparts because of their ability to employ a high degree of debt leveraging. However, since March 1977, several of Japan's major semiconductor manufacturers have made large reductions in their debt-to-equity ratios. This article examines the motivations behind this change, places it in the context of the Japanese financial system, and explores its implications for the relative costs of capital in the United States and Japan. [ABSTRACT FROM AUTHOR]

This article evaluates the role of rate of return (ROE) in assessing cross-sectional differences in prices and price changes of ROE. Accounting ROE is traditionally regarded as the major summary number in financial statement analysis. Findings of the study indicate that ROE is best interpreted as a profitability measure and not as a risk measure and observed ROE indicates future profitability and thus distinguishes market-to-book ratios. The comparison of earnings to book values in the ROE calculation provides information about how earnings project to future earnings

Associations between accounting earnings and stock returns are modeled and tested by examining relationships between earnings response coefficients and industry structure characteristics. Response coefficients are estimated using a new approach that does not require proxies for market earnings expectations, This approach appears to be well specified relative to a traditional approach and may have wider applicability in other research contexts. A randomization procedure for controlling for returns dependence is also applied. The results suggest that response coefficients differ considerably across industries and that these differences are related to industry entry barriers, product type, growth, financial leverage, and operating leverage. [ABSTRACT FROM AUTHOR]

This study examines whether the funds statement which uses the working capital concept of funds contains incremental information beyond that supplied by the conventional statements. In 1971, The Accounting Principles Board (APB) required the disclosure of a Statement of Changes in Financial Position along with the balance sheet and income statement. this statement, which is better known as The Funds Statement, soon became a target of criticism. It was often argued that the statement, which most commonly used a working capital definition for funds, failed to indicate a firm's ability to maintain its liquidity and ignored short-term financing and investment decisions. In November 1987, the FASB required the disclosure of a statement of cash flows which replaces the statement of changes in financial position. The evaluation of incremental information content is based on the association of financial ratios derived from the SCFP with market rates of return of shares. While accounting research has examined the information content of earnings, components of earnings, components of the balance sheet, specific footnote disclosures, and so forth, there has been very little research into the information content of data from the Statement of Changes in Financial Position.

The results of a study employing protocol analysis are compared with the results of earlier questionnaire studies concerning the use of financial and accounting data by financial analysts. In particular, the importance of segment information is demonstrated. The importance of cash flows and of components of earnings was less than in the earlier studies, but earnings per share, return on investment, and liquidity were found important. [ABSTRACT FROM AUTHOR]

The article explains a procedure for determining the products or product lines with the most cash-generating capability. This employs the internal-rate-of-return process which is commonly linked with the capital-budgeting decision. This method requires the calculation of the rate that equates expected future returns with current outlays. Also, the process of calculating product gammas may also reveal unusual characteristics of some products. These may reveal situations which may be remedied such as overstocking, excess lag time in collections for some products, and unfavorable credit terms.

We show that the risk-return paradox can be partly explained by the choice of accounting risk and return measures. Returns computed with equity or assets from End-of-Period (EOP) annual reports produce negative risk-return associations, while measures calculated using Beginning-of-Period (BOP) equity or assets yield more positive relationships. The likelihood of reporting negative relationships using EOP methods is accentuated by dividing samples at median returns. Below-median firms suffer losses and may appear to have lower and more variable returns than above-median firms, simply because of EOP methods. Our results show that mean and variance measures are unstable and risk-return relationships vary inversely the number of firms reporting mean losses. [ABSTRACT FROM AUTHOR]

This article discusses how uncertainty and taxation can impact the credit union rate and earnings retention decisions. A model is presented here that takes is provides a best practices method for credit unions to make decisions related to loans and interest rates that takes factors such as uncertainty and taxation into consideration. Several mathematical models are presented that demonstrate ways that credit unions can increase expected returns and total net gain. It is believed that credit unions would, due to the competitive nature of the industry, do what they could to maintain interest and loan rates so as to not lose business.

The article presents an examination into the relationship between unexpected accounting rates of return and abnormal returns between the 1965-1982. The intertemporal and cross-sectional variations of the financial reports are analyzed, suggesting an inflationary model of explanation. Data is presented from the Center for Research in Security Prices (CRSP) and measured through earnings deflated by opening net book value (ROCE) and by opening market value of ordinary share capital (ROVAL) paradigms.

The article focuses on the usefulness of earnings and earnings research to investors. It states that the correlation between stock returns and on earnings is almost negligibly low. It suggests that the parameters of the returns/earnings relation shows a bit of instability over time. It claims that quarterly and annual earnings has limited usefulness to investors. It suggests that normative aspects of earnings research primarily tries to eliminate a current void in financial economic models, while posit a relationship between market values and income.

This article presents a simulation approach to compare event study methodologies using daily stock returns. The authors are interested in examining if the interactions the occur between portfolio size, event-date uncertainty and the size of abnormal performances impacts the ability of researchers to detect abnormal performances of stock returns. They note that their results were similar to the work of previous researchers who have also run portfolio simulations to investigate the impact of these variables.

The article presents an analysis of the quantitative relationship between internal rates of return (IRR) and accounting rates of the same (ARR), mathematically challenging the universal validity of their correlations. Previous quantitative research on the subject is cited and re-evaluated in depth, pointing out mathematical holes, including their asymptotic analysis of cash flow and utilization of matrix theory. Several corrected formulas are provided, challenging previously asserted systematic correlations between IRR and ARR.

S&P 500 stock return volatilities are compared to the volatilities of a matched set of stocks, after controlling for cross-sectional differences in firm attributes known to affect volatility. No significant difference in volatility is observed between 1975 and 1983- before the start of trade in index futures and index options. Since then, S&P 500 stocks have been relatively more volatile. The difference is statistically, but not economically, significant. The relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns. Other factors besides the start of derivative trade could be responsible for the small increase in volatility. [ABSTRACT FROM AUTHOR]

Studies relating accounting and price data often use the COMPUSTAT or related PDE data base as the source for the accounting data. This practice may introduce a look-ahead bias and an ex-post-selection bias into the study. We examine this problem by comparing results from the standard COMPUSTAT data base with those from a data base which suffers from neither bias. We find that rates of return from portfolios chosen on the basis of accounting data from the two data bases differ significantly. Further, we find that these differences imply different conclusions when we test a specific hypothesis relating accounting and price data. Finally, we propose a number of remedies which may reduce the bias when the standard COMPUSTAT data base is used. [ABSTRACT FROM AUTHOR]

The Arbitrage Pricing Theory (APT) has been proposed as an alternative to the mean-variance Capital Asset Pricing Model (CAPM). This paper considers the testability of the APT and points out the irrelevance for testing of the approximation error. We refute Shanken's objections, including his assertion that Roll's critique of the CAPM is applicable to the APT. We also explain the testability of the APT on subsets, and we explore the relationship between the APT and the CAPM. [ABSTRACT FROM AUTHOR]

Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to "overreact" to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior "winners" and "losers." Portfolios of losers experience exceptionally large January returns as late as five years after portfolio formation. [ABSTRACT FROM AUTHOR]

Many investors occasionally receive what they believe to be nonpublic information about a security. Others feel that by applying superior analytical skills to public information, they are able to arrive at valuable insights that are not generally appreciated. In either case, there is a substantial opportunity for profit if the investor is correct. The investor must be correct on two counts. First, the estimate of the worth of the information must be reasonably accurate in terms of its impact on the price of the stock, and second, the investor must make a realistic assessment of the likelihood that the market already has received the information or insight in question, This paper is concerned only with the latter problem. The probability distribution of the date on which the market receives information already in the hands of the investor is calculated for a simple model of information propagation. It is then shown how this probability distribution can be brought to bear on the management of a portfolio. [ABSTRACT FROM AUTHOR]

Using transactions data, the behavior of returns and characteristics of trades at the micro level is examined. A minute-by-minute market return series is formed and tested for normality and autocorrelation. Evidence of differences in return distributions is found among overnight trades, trades during the first 30 minutes following the market opening, trades at the close, and trades during the remainder of the day. The latter distribution is found to be normal. Unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day. When the beginning- and end-of-the-day effects are omitted, autocorrelation in the market return series is reduced substantially. A number of patterns in trading are reported. [ABSTRACT FROM AUTHOR]

In this paper, we consider two hypotheses for the recent performance of real estate returns. The first is the random event argument that real estate is positively correlated with unanticipated inflation but that structural change in expected returns due to a change in the perceived sensitivity of returns to unanticipated inflation has not taken place. The second is the hedge demand argument that formulates the structural shift hypothesis. The paucity of real estate and other expectations data as well as the general identification problem make it extremely difficult to distinguish between these hypothesis. Our tests consist of estimates of inflation betas for various asset categories overtime as well as estimates of the hedge vector, S[sup -1]C. Although some support for the hedge argument is found, the results are not strong enough to reject the random event argument and conclude that a decline in the required return on real estate due to a relative increase in inflation beta drove returns during the 1970's. [ABSTRACT FROM AUTHOR]