Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings method and a hybrid approach

In this paper, we assess the relative performance of the direct valuation method and industry multiplier models using 41 435 firm‐quarter Value Line observations over an 11 year (1990–2000) period. Results from both pricing‐error and return‐prediction analyses indicate that direct valuation yields lower percentage pricing errors and greater return prediction ability than the forward price to aggregated forecasted earnings multiplier model. However, a simple hybrid combination of these two methods leads to more accurate intrinsic value estimates, compared to either method used in isolation. It would appear that fundamental analysis could benefit from using one approach as a check on the other.     

Trade costs, firms and productivity

This paper examines the response of U.S. manufacturing industries and plants to changes in trade costs using a unique new dataset on industry-level tariff and transportation rates. Our results lend support to recent heterogeneous-firm models of international trade that predict a reallocation of economic activity towards high-productivity firms as trade costs fall. We find that industries experiencing relatively large declines in trade costs exhibit relatively strong productivity growth. We also find that low-productivity plants in industries with falling trade costs are more likely to die; that relatively high-productivity non-exporters are more likely to start exporting in response to falling trade costs; and that existing exporters increase their shipments abroad as trade costs fall. Finally, we provide evidence of productivity growth within firms in response to decreases in industry-level trade costs.     

New MII Circular on Telecom and Internet Firms

On July 13, 2006, the Min istry of Information Indus try of the People＇s Repub lic of China （＂MII＂） issued a new notice concerning foreign-invested telecom and internet companies in China. MII＇s ＂Notice on Strengthening Regulation of Foreign Investment in and Operations of Value-Added Telecom Services＂ （the ＂MII Circular＂）, further clarifies the existing regulatory framework governing foreign investment in internet and other value-added telecommunications （＂ VATS ＂） businesses in China.     

Downside Risk

Economists have long recognized that investors care differentlyabout downside losses versus upside gains. Agents who placegreater weight on downside risk demand additional compensationfor holding stocks with high sensitivities to downside marketmovements. We show that the cross section of stock returns reflectsa downside risk premium of approximately 6% per annum. Stocksthat covary strongly with the market during market declineshave high average returns. The reward for beasring downsiderisk is not simply compensation for regular market beta, noris it explained by coskewness or liquidity risk, or by size,value, and momentum characteristics. (JEL C12, C15, C32, G12)     

Employee Share Ownership: Safeguarding Investments in Human Capital

Valuable investments in human capital, it has been argued, may be at risk in much the same way as shareholder equity capital. In this paper, we develop and test the hypothesis that employee share ownership (ESO) may be used to encourage and safeguard investments in human capital. Using the Workplace Employee Relations Survey 1998, we examine the empirical link between the likelihood of ESO and the presence of valuable human capital. Adjusted for possible structural influences, empirical evidence suggests considerable support for our hypothesis.     

Management earnings forecasts and other forward-looking statements

We identify forward-looking statements (FLS) in firms’ disclosures to distinguish between “forecast-like” (quantitative statements about earnings) and “other”, or non-forecast-like, FLS.  We show that, like earnings forecasts, other FLS generate significant investor and analyst responses. Unlike earnings forecasts, other FLS are issued more frequently when uncertainty is higher. We then show that earnings-related FLS are more sensitive to uncertainty than quantitative statements, suggesting that managers are more likely to alter the content than the form of FLS when uncertainty is higher.  Our study indicates that incorporating other FLS into empirical measures provides a more comprehensive proxy for firms’ voluntary disclosures.     

The Many Dimensions of Child Poverty: Evidence from the UK Millennium Cohort Study*

In this paper, we use a multidimensional framework to characterise child poverty in the UK. We examine the interdependencies amongst the different dimensions of multidimensional poverty and the relationship between multidimensional poverty and income poverty. We also explore the links between multidimensional poverty, income poverty and children's cognitive and non‐cognitive development. Our findings suggest that multidimensional poverty identifies many but not all of the same children classified using standard income poverty measures. Approximately 20 per cent of children are classified as poor on one measure but not the other. Children in workless households and ethnic minority children face the highest odds of growing up in both multidimensional poverty and income poverty. We find similar levels of persistence in multidimensional poverty and income poverty, with 17 per cent (18 per cent) of children experiencing persistent multidimensional (income) poverty and 10 per cent of children experiencing both persistent multidimensional poverty and persistent income poverty. Multidimensional poverty (both episodic and persistent) also has a detrimental impact on children's development over and above the negative impact of income poverty.     

Owning and testing smoke alarms: findings from a qualitative study

Reducing injury and death in house fires is an important public health intervention activity with the presence of an operating smoke alarm widely considered an important way of reducing harm from fire. Yet despite a number of initiatives and fire-safety campaigns, a number of households at greater risk of domestic fire fail to have a functioning alarm. This paper provides empirical insight into everyday experiences of owning, maintaining and testing smoke alarms among a purposive sample of individuals identified as being less likely to own a functioning smoke alarm. Analysis from focus group data identifies a number of reasons why individuals may not own or test an alarm, and provides new insight into how fire risk is understood in the context of a range of competing, and potentially more prominent, individual and household risks. We suggest that while initiatives that aim to reduce fire injury and death should be continued, their success, and indeed future research on fire risk, should pay attention to the mundane and everyday contexts within which individuals currently rarely reflect on their risk of experiencing a domestic fire.     

Decomposing the market,industry, and firm components of profitability: implications for forecasts of profitability

Academics and practitioners frequently highlight that overall market and industry performance is an important aspect of a firm’s profitability. However, few studies allow for the decomposition of a firm’s profitability into market, industry, and idiosyncratic components, and those that do often assume that the market and industry components are cross-sectional constants. In this study, we allow for variation in firm-specific sensitivities to market, industry, and idiosyncratic economic shocks, and then assess whether and when this decomposition results in improved forecasts of profitability. For the overall sample, we find significant improvements in terms of the magnitude of forecast errors and the frequency with which forecasts based on the decomposed values are superior versus forecasts using only total profitability. Across the sample as a whole, decomposing profitability in the forecasting process results in more accurate forecasts greater than two-thirds of the time (increasing to almost 80% within certain subsamples). Our results provide strong support for the role that firm-specific measures of market and industry profitability play in predicting a firm’s future performance, as well as highlighting settings where the decomposition provides the greatest benefit in terms of predicting future changes in profitability.