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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]

This article presents the author's comments on the article "Market Consequences of Earnings Management in Response to Security Regulations in China," by In-Mu Haw, Daqing Qi, Donghui Wu, and Woody Wu. They examined the minimum 10 percent return on equity (ROE) requirement in China for stock rights issues that may provide firms with clear incentives to manage earnings. They found evidence that indicates persuasively that firms are responding to these incentives. However, the author describes some challenges in the investigation of earnings management.

Using 5-minute high frequency data from the Chinese stock market, we employ a non-parametric method to estimate Fama-French portfolio realized jumps and investigate whether the estimated positive, negative and sign realized jumps could forecast or explain the cross-sectional stock returns. The Fama-MacBeth regression results show that not only have the realized jump components and the continuous volatility been compensated with risk premium, but also that the negative jump risk, the positive jump risk and the sign jump risk, to some extent, could explain the return of the stock portfolios. Therefore, we should pay high attention to the downside tail risk and the upside tail risk. [ABSTRACT FROM AUTHOR]

Does the rate of return from the Chinese real estate industry correlate with the intensity of competition among real estate firms? If China’s equity market performs efficiently, the rates of return of real estate firms should vary indirectly with their level of monopoly power. Greater monopoly power reduces earnings risk and leads to lower costs of capital. The authors analyze empirical evidence and indicate no relationship exists between returns and competition. Speculation may induce stock prices to deviate from normal values. Because normal values assume no speculation, Chinese markets are not likely to be economically efficient. [ABSTRACT FROM PUBLISHER]

The rate of return on venture capital investment of venture capital (VC) firms in China has been attracting increasing attention. We use robust multinomial regression models to analyze 56 exit projects of venture capital investment from 1999 to 2003 in China. The results show that the returns of state-owned VC firms are lower than those of non state-owned VC firms. Furthermore, the returns of the VC firms located in Shanghai and Shenzhen are higher than those in other regions. The capital scale of VC firms is negatively correlated with the rate of return. In addition, some variables, such as business duration, investment scale, investment duration and exit vehicle, are probably unrelated to rate of return on venture capital investment in China. [ABSTRACT FROM AUTHOR]

This paper surveys the literature on the return to education and economic growth in China and offers new perspectives and estimations. The return to education has been rising since the reform. While the overall rate of return is still low compared to other countries, young workers and workers in the private sector enjoy significantly higher returns to education than the average. This indicates that the productivity-related traits such as education are more rewarded where market forces are functioning. Moreover, the return to education is non-linear in the sense that the return to secondary education or above is much higher. In addition, due to the spatial segmentation of labor markets in China, wide variations in return to education exist across regions. Studies at the macro-level show that the return to public education is much higher than return to private education. Using recent data (1982-2001) across provinces, this paper examines how education contributes to China's economic growth. It finds that the increase in educational attainment plays an important role in China's economic growth as well as the initial level of educational attainment. [ABSTRACT FROM AUTHOR]

By using an extension of the Fama and MacBeth cross-sectional regression model, this analysis examines the relationship between stock returns and (i) a local beta, (ii) two global betas, and (iii) some firm-specific characteristics in the Chinese A-share market. The results of the analysis suggest that neither the conditional local beta nor the global betas has a significant relationship with stock returns in A-shares. Our findings indicate that firm factors, such as the book-to-market ratio and firm size, are important in explaining stock returns. However, the size effect is sensitive to the specification of the model. Finally, the results of sub-period tests indicate that the A-share market did not become increasingly integrated with either the world stock markets or the Hong Kong stock market over the period 1995–2002. [ABSTRACT FROM AUTHOR]

This paper examines the economic performance of 16 property companies in Hong Kong, and how well they do in comparison with Singapore property companies. The results show that Hong Kong property companies that diversified into other sectors appeared to perform better than those focused solely in real estate. Property companies in Hong Kong generally achieved higher rate of returns on their capital invested than Singapore property companies. Government financial assistance for private homeownership is believed to play an important role in the relatively better performance of Hong Kong's companies, particularly after 1997. Meanwhile, firms in Hong Kong are exposed to higher weighted average cost of capital due to higher business risks, in addition to higher interest rate stemmed from a linked exchange rate system. On the whole, property companies in both Singapore and Hong Kong do not perform well from an Economic Value-Added (EVA) perspective, but this does not necessarily mean that they are poorly managed. The empirical results show that the performance of a company is influenced dramatically by profits generated from the sale of non-property assets. [ABSTRACT FROM AUTHOR]

Abstract: Although variable-air-volume system (VAVS) can save much energy compared with other kind of HVAC system (e.g. constant-air-volume system (CAVS), fan-coil system (FCS)), it demands more investment. The rate of return of variable-air-volume system, which is closely related to the energy-saving rate of the system, ought to be taken into account by the engineers in the course of design. China has a wide territory and different climates that will impact on the energy-saving rate of variable-air-volume system. To help the engineers have a good idea of the rate of return of variable-air-volume system in different areas of China, it is necessary to establish such program that can evaluate the energy-saving rate of variable-air-volume system compared to constant-air-volume system and fan-coil system. In this paper, the specific energy models of the primary equipments in HVAC system are established, and the evaluation program for the energy-saving of variable-air-volume system compared to constant-air-volume system and fan-coil system are expounded. The parameters in the energy models, which may impact the validity of the evaluation program, can be obtained from the field-testing data or the performance data provided by the product manual. One small office building is taken as an example, the year-round energy simulations of the three kinds of HVAC systems (variable-air-volume system, constant-air-volume system and fan-coil system) of the same building have been made, and the energy-saving of the variable-air-volume system has been evaluated in six cities of China by the program. The evaluation program can also be used to analyze the energy-saving of variable-air-volume system in medium and big office buildings. [Copyright &y& Elsevier]

The article presents comments and discussion on a paper presented at the Brookings Institute titled "The Return to Capital in China," by Chong-En Bai, Chang-Tai Hsieh, and Yingyi Qian. Olivier Blanchard questions the authors' high value of capital share, at 15 to 20 points above values in other countries, yet focuses his discussion on self-employment and the implication of the reported capital share for the computation of total factor productivity growth. Richard N. Cooper questions the paper's data, having little confidence in Chinese economic statistics, and comments that the authors employ more accounting than economic theory. Detailed comments and discussion are presented, as is feedback from William Nordhaus, Wing Woo, John Cochrane, and Gary Jefferson.

The article asks if China's investment rate, at 40% of gross domestic product, is too high or is the investment rate high because the return to capital is high. The article explores China's return to capital, compares it to that of other countries, and researches the allocation of investments across sectors and regions. The methodology of measuring the return to capital is calculated using aggregate output, capital stock, and share of capital. The article suggests that the return to capital has remained high in spite of China's high investment rates. The reasons for this high return are explored are attributed to output growth and the increase in capital share of aggregate income. Some questions regarding allocation of investment remain inconclusive.

This article illustrates the application of specification tests for the selection of a stock return generating process (SGRP) in determining the type of market returns that is more suitable for developing a market model of stock returns in Thailand and Hong Kong, China. The first test is the J-test proposed by R. Davidson and J. G. MacKinnon. The test is applicable to the case of an individual stock. However, when estimating a market model for a group of stocks, the J-test results may be inconclusive. Several factors motivate the performance of the test. First, if equation is rejected by the data, then despite its popularity, the equally-weighted index should not be used in the empirical analysis because of specification errors. Second, if equation is rejected by the data, then there is further justification for the continued use of the equally weighted index. Third, if equations are not rejected by the data, then it affirm previous research in using either index. Fourth, since coefficient estimates for the two specifications are likely to differ, if they are to be used to form efficient portfolios, they should first correctly specify the market model. Finally, an accurate characterization of the market model is essential to a correct assessment of the cost of capital. To wit, an under-estimation of a stock's beta will lead to a downward bias in the cost of capital.

A comparison of Hong Kong and United States rate-of-return regulation indicates differences in the definition of the rate base and in the proportion of it permitted a fair rate of return, These differences imply that Hong Kong electric utilities utilize proportionately more fixed (less current) assets, and that these assets are financed proportionately more by equity (less by debt), than their United States counterparts. Our results support both these predictions, providing further evidence that since rate-of-return regulation is implemented by reference to "reported" results, comparatively minor differences in regulatory frameworks can have quite dramatic consequences for utilities' asset structure and financing mix. [ABSTRACT FROM AUTHOR]

Focuses on the new rate-of-return formula developed by the U.S. Federal Energy Regulatory Commission, for secondary markets in the gas industry in the country. Utility of cash flow approach combined with dividend rates and projected earnings growth rates; Concerns associated with the low rate of investment for pipelines; Analysis of factors needed to attract and retain capital.