The Value Relevance of Multiple Occurrences of Nonrecurring Items

Discontinued operations, special items, or extraordinary items typically are nonrecurring items in firms' income statements. As such, prior research has theorized that these items are of minimal relevance to market valuation of the firm, since they are transitory in nature. Moreover, anecdotal evidence in the financial press is supportive of this notion. We examine firms that report either single or multiple occurrences of such items over a rolling six-year period between 1977 and 1996 and find in both cases that such items are value-relevant. When multiple occurrences are not partitioned by type (discontinued operations, special items, or extraordinary items), the more recent such event in the series has a negative effect upon market value of equity, whether it has had a positive or negative effect upon net income.This is consistent with at least two possible explanations, multiple occurrences of such items indicate firms in financial difficulty, or multiple occurrences indicate firms whose managers have engaged in repeated attempts at earnings management, and that the most recent attempt is being devalued by the market. We find patterns of discretionary accruals consistent with managers engaging in upward earnings management prior to multiple write-downs using special items. We also find that firms with multiple write-downs are more likely to go into liquidation or bankruptcy within the next five years. We find that single occurrences also are value-relevant and are positively correlated with market values. Tests on the sample when partitioned by type lead to similar results, though signs of the effects upon net income change in some instances.     

Do CRA‐Related Events Affect Shareholder Wealth? The Case of Bank Mergers

This study explores how Community Reinvestment Act (CRA) protests and their resolution affect the market value of merging banks. We find, in contrast to earlier research, that CRA‐related events are not associated with significant negative market reactions for either bidder or target institutions. Rather, the market does not seem to respond strongly to CRA‐related events at all. The results appear to stem from the choice of an estimation period for establishing an institution's baseline stock‐market price dynamics that does not include abnormal security price movements induced by the merger announcement.     

Relational Investing And Firm Performance

A substantial academic and popular literature argues that the performance of American corporations might improve if American corporations had long‐term outside investors (relational investors) who would hold large stakes, actively monitor management performance, and engage with management in setting corporate policy. Institutional investors can perhaps play this role. We provide the first large‐scale test of the hypothesis that relational investing can affect corporate performance. We consider ownership and performance data for more than 1,500 large U.S. companies over a thirteen‐year period (1983–1995). Our results provide a mixed answer to the question of whether relational investing affects corporate performance. Our data suggest that there was a period in the late 1980s—a period with a uniquely high level of hostile takeover activity—when the presence of a relational investor was associated with higher stock market returns. This cohort of relational investors may have been able to induce corporate restructuring, whose principal effect was to reduce growth rates while improving profitability. But this pattern was not found in the early 1980s or repeated in the early 1990s.     

Industrialisation and the decline of the coastal cities in South Africa: A neglected dimension

Empirical evidence points to a mismatch between the growth of population and the growth of manufacturing activity among the metropolitan centres of South Africa. While the coastal metropoles lag behind the PWV and certain secondary cities and towns in terms of manufacturing growth, the opposite applies to urbanization. Various market failures and policy‐induced distortions may have contributed to the relatively poor per‐formance of manufacturing in the coastal cities. Until such time as these distortions have been completely removed by suitable changes to government policy, temporary subsidies to offset the disadvantages of the coastal areas may be advisable.     

The Education/Growth Relationship: Evidence from Real State Panel Data

This article employs 1963–97 panel data for the 48 contiguous U.S. states (and District of Columbia) to examine the relationship between real personal income and real education expenditures as well as that between real personal income and six measures of real research and development expenditures. Bivariate regressions are employed to determine whether the information content between real education expenditures and real income runs from real income to real education spending or vice versa. The authors find that when data are relative to the U.S. average, the direction of information content runs from real state-level education expenditures to real state-level income. (JEL I2 , H72 )