A Note on a Framework for Valuation Ratios Based on Fundamentals*

Valuation ratios divide stock price by accounting metrics such as earnings, earnings growth, and book value. This study adapts the general valuation framework in Ohlson and Juettner-Nauroth (2005) and Ohlson (2005) to present a unified approach for developing valuation ratios based on fundamentals, referred to as fundamental valuation ratios. One starts with a valuation model that is driven by an accounting metric a and its abnormal growth, then divides the valuation model by a to get a fundamental valuation ratio. For any valuation ratio, one can find a corresponding fundamental valuation ratio, as long as the valuation model is based on the same metric a as the valuation ratio denominator.     

An economic assessment of the value of cattle to the rural communities in the former Venda region

This article assesses the economic value of livestock to rural communities in quantitative terms. A quantitative valuation of livestock is assessed in terms of milk production, manure use, draught power and offtake/sales criteria. The study is based on a cross-sectional survey of 125 small-scale cattle farmers interviewed in the Venda region of the Limpopo Province of South Africa. The results of the study estimated the average total value of an adult cow to be R1 152. This value should be viewed as an opportunity cost of the cattle. A quantitative valuation of livestock is important in indicating the degree of impact of cattle mortalities on the livelihood of rural households. In addition, it offers important guidelines for farmers' compensation by the government, should a disaster occur.     

Would China＇s Sovereign Wealth Fund Be a Menace to the USA？

The sovereign wealth club acquired a new member with the official launch of the China Investment Corporation （CIC） on 29 September 2007. The arrival of CIC has further heated up debate regarding sovereign wealth funds （SWFs） and their potential implications for global financial markets. This is because, in carrying out its investments, CIC can tap into China＇s huge official foreign exchange reserves, which by April 2008 had surged to US$1.76tn. CIC＇s initial working capital of US$2OObn makes it the fifth largest SWFs in the world today. This article seeks to analyze CIC＇s investment strategies, as well as their potential economic and political implications for global as well as US financial markets.     

Role of Education in Cigarette Smoking: An Analysis of Malaysian Household Survey Data*

Heckman's sample selection model is used to examine the role of education on household purchase decisions and expenditures of tobacco products in Malaysia. Results of the marginal effects of education, segmented by ethnic and gender groups, suggest that education decreases the probability, conditional levels and unconditional levels of tobacco expenditures amongst Malaysian households. Specifically, an additional year of education of the household head, irrespective of ethnic or gender considerations, decreases smoking probability by 1.5 percent. However, the negative effect of education seems to be higher for Chinese (US$1.07) than Malay (US$0.26) households in terms of conditional expenditures. Furthermore, education significantly decreases conditional tobacco expenditures within male‐headed households.     

Book Reviews

Ian Chalmers and Vedi R. Hadiz (eds) (1997), The Politics of Economic Development in Indonesia, Routledge, London, pp. xxx + 269. A$155.00.

Geoff Forrester (ed.) (1999), Post-Soeharto Indonesia: Renewal or Chaos? Institute of Southeast Asian Studies, Singapore, and KITLV Press, Leiden, pp. 373. Cloth: S$49.90/US$32.90; paper: S$29.95/US$19.95/A$29.95.

Corden, Max (1999), The Asian Crisis: Is There a Way Out?, Institute of Southeast Asian Studies, Singapore, pp. 82. S$19.90/US$12.90.

Karl D. Jackson (ed.) (1999), Asian Contagion: The Causes and Consequences of a Financial Crisis, Westview Press, Boulder CO, pp. xvi + 312. Cloth: US$75.00; Paper: US$30.00.

H.W. Arndt and Hal Hill (1999), Southeast Asia's Economic Crisis: Origins, Lessons and the Way Forward, Institute of Southeast Asian Studies, Singapore, pp. 192. Cloth: S$66.90/US$44.90; paper: S$28.00/US$17.90/A$29.95.

Manuel F. Montes (1998), The Currency Crisis in Southeast Asia: Update, Institute of Southeast Asian Studies, Singapore, pp. xl + 62. Cloth: S$36.00 /US$24.00; paper: S$25.90/US$17.90.     

Book Reviews

David Glover and Timothy Jessup (eds) (1999), Indonesia's Fires and Haze: The Cost of Catastrophe, Institute of Southeast Asian Studies, Singapore, and International Development Research Centre, Ottawa, pp. xviii + 149. Cloth: S$59.90; US$36.00; Paper: S$28.90; US$17.00.

Jeffrey A. Winters (1996), Power in Motion: Capital Mobility and the Indonesian State, Cornell University Press, Ithaca NY, pp. xvi + 241. Cloth: US$36.90; A$54.25.

Donald K. Emmerson (ed.) (1999), Indonesia Beyond Suharto: Polity, Economy, Society, Transition, M.E. Sharpe, Armonk NY and London, published in cooperation with The Asia Society, pp. xxviii + 395. Cloth: US$69.95; Paper: US$26.95. Not available in Australia and Southeast Asia.

Tulus Tahi Hamonangan Tambunan (2000), Development of Small-scale Industries during the New Order Government in Indonesia, Ashgate, Aldershot, pp. 218. Cloth: £37.50.

C.H. Kwan, Donna Vandenbrink and Chia Slow Yue (eds) (1998), Coping with Capital Flows in East Asia, Nomura Research Institute, Tokyo, and Institute of Southeast Asian Studies, Singapore, pp. xiii + 319. Cloth: S$78.90; US$49.90; Paper: S$49.90; US$32.90.

International Labour Organisation (1999), Indonesia: Strategies for Employment-Led Recovery and Reconstruction, Jakarta, pp. 404.     

Foreign Currency Exposure of Multinational Firms: Accounting Measures and Market Valuation*

Abstract. The accounting method in Statement of Financial Accounting Standards (SFAS) No. 8 for restatement of a foreign operation's financial statements denominated in a foreign currency into the parent's currency equivalents for inclusion in the parent company's financial statements was severely criticized by market participants and managers. Its replacement, SFAS No. 52, represented an attempt to improve on the methods of SFAS No. 8. This study examines two questions: did SFAS No. 8 produce relevant information for valuing US multinational firms, and are the results reported under SFAS No. 52 more valuation relevant than those reported under SFAS No. 8? Valuation relevance is studied because the Financial Accounting Standards Board (FASB) has stated that relevance is an important criterion for choosing among alternative accounting methods. Considered collectively, the results suggest that the rules in SFAS No. 8 produced a poor accounting measure for valuing US multinational firms, and that the introduction of SFAS No. 52 has resulted in a significant improvement in the valuation relevance of the accounting numbers associated with the restatement of a foreign operation's financial statements. However, this improvement applies only to the subset of firms that designated a foreign currency as their functional currency (i.e., switched to the current-rate method) and not to firms that designated the dollar as their functional currency (i.e., as if they still reported under SFAS No. 8).     

Gender Dimensions to the Incidence of Tariff Liberalization

Abstract: This paper evaluates a topic in the globalization and poverty debate that is often difficult to measure, namely the transmission of price changes associated with tariff liberalization to households. Furthermore, it raises the question of whether there are discernible differences between male‐ and female‐headed households that affect this consumption‐trade link. It is a partial analysis as a consequence, but one that demonstrates the importance of such a focus for continued research and policy development surrounding the impacts of globalization. Specifically, the paper evaluates how tariff changes impacted male‐ and female‐headed households in South Africa over the discrete periods 1995, 2000, and 2004. The analysis of consumption trends by sex of household head shows statistically significant differences which confirm that resources are managed differently between the sexes, and these are transmitted through to the tariff incidence analysis. On the whole, it was found that: (1) male‐headed households almost always bear a greater share of the tariff incidence compared to female‐headed; (2) both male‐ and female‐headed households — across all expenditure quantiles other than the most wealthy — bear a greater share of the tariff burden compared to their share of total expenditure; and (3) changes to the incidence over 1995, 2000, and 2004 between the sexes mimicked the trends for the population as a whole, but showed crucial differences at the bottom end of the expenditure distribution. This suggests that the sex of the household head matters, and must be considered in addition to other household identifying factors (e.g. socio‐economic status) when evaluating the impacts of tariff liberalization.     

Invasive plants – friends or foes? Contribution of prickly pear (Opuntia ficus-indica) to livelihoods in Makana Municipality,Eastern Cape,South Africa

The negative impacts of invasive alien species on the environment are well documented. However, despite the predominantly negative perceptions associated with invasive species, it is evident that a number of these plants have been part of the landscape for generations and have numerous commercial and non-market uses. Consequently, there is a need for research that considers the impact of invasive species on the livelihoods and well-being of local communities. The authors investigated the contribution that the trade in prickly pear (Opuntia ficus-indica), an invasive alien species, makes to the household income streams of poor trading households. The research highlights the apparent conflict of interests and trade-offs that exists between local traders, for whom the sale of the prickly pear provides a livelihood source, and the South African Government, who are actively seeking to remove the plant from the landscape.     

Estimating household willingness to pay for water services in a rural economy: The case of Kanye in southern Botswana

This study uses the contingent valuation approach to examine the relationship between selected socio-economic characteristics of households and their willingness to pay for private water connection. An iterative bidding method was used to obtain survey data from 135 households randomly selected from Kanye in southern Botswana and the ordinary least-square regression technique was used to estimate the effects of selected exogenous variables on willingness to pay. The results show that household income, level of education and employment status of the head of the household and level of consumers' awareness are the principal factors influencing willingness. This suggests that any government policy that increases these factors will increase households' willingness. In addition, because consumers' income is associated with their willingness to pay, it is suggested that policies on connection and user fees recognise income inequalities when determining the amount that households should pay.     

Socioeconomic status in childhood and health after age 70: A new longitudinal analysis for the U.S., 1895–2005

The link between circumstances faced by individuals early in life (including those encountered in utero) and later life outcomes has been of increasing interest since the work of Barker in the 1970s on birth weight and adult disease. We provide such a life course perspective for the U.S. by following 45,000 individuals from the household where they resided before age 5 until their death and analyzing the link between the characteristics of their childhood environment – particularly, its socioeconomic status – and their longevity and specific cause of death. White U.S.-born males living before age 5 in lower SES households (measured by father's occupation and family home ownership) who survive to age 70 die younger and are more likely to die from heart disease than those living before age 5 in higher SES households. The pathways potentially generating these effects are discussed.     

The consequences of health shocks on households: Evidence from China

Unexpected health shocks may bring catastrophic consequences for households. This paper examines the effect of unexpected adverse health shocks on household members' physical and mental health, labor supply, household income and asset, and health behaviors in China by analyzing two nationally representative datasets and adopting a difference-in-differences method augmented with coarsened exact matching. We find that an unexpected health shock results in a discounted out-of-pocket medical expenditure of 16,943 RMB (US$ 2647) over five years for an average household, a reduction of household income per capita of 841 RMB per year (US$ 131, or 6.0% of household annual income per capita), and a loss of net household asset per capita of 13,635 RMB (US$ 2130, or 9.7% of household asset per capita). It raises the probability of an average household applying for public poverty relief allowance by 2.8 percentage points. In addition, we document a strong intra-household spillover effect of health shocks on mental health and health behaviors. A simple back-of-envelope calculation shows that the health shock induces a private cost of 34,966 RMB (US$ 5463) over 5 years for an average household, and incurs a social financial burden of 6066 RMB (US$ 948) in 5 years per household in medical reimbursement and social welfare transfers. At a national scale, the total social burden of health shocks from cardiovascular and cerebrovascular diseases amounts to 1.1 trillion RMB (US$ 172.1 billion) over 5 years.     

Analysts' Interpretation and Investors' Valuation of Tax Carryforwards*

We examine how financial analysts and equity investors incorporate information on deferred taxes from carryforwards into earnings forecasts and share prices. We focus on carryforwards because, in providing this information each period, management must use their private information about the firm's profitability prospects. Thus, accounting measurement of tax carryforwards is another way of providing a management earnings forecast. In analyzing the role of carryforwards in valuation, we distinguish between two conflicting effects. First, deferred taxes from carryforwards represent future tax savings; hence, they should be valued positively as assets. In contrast, the existence of tax carryforwards may signal a higher likelihood of future losses, which would have a negative effect on expected earnings and share prices. We find that analysts consider earnings of firms with carryforwards to be less persistent because of the increased likelihood of future losses. We also find that analysts tend to be less precise and more optimistic (biased) in forecasting earnings of firms with carryforwards. This higher optimism and lower precision are more pronounced just after firms adopt Statement of Financial Accounting Standards (SPAS) 109 and are almost entirely corrected over time. An analysis of investors' valuation indicates a strong positive relation between deferred taxes from carryforwards and share prices, suggesting that these carryforwards are valued as assets. Also, earnings and book values of equity are valued less in firms that have carryforwards than in firms without carryforwards. Finally, the valuation allowance required under SFAS 109 assists equity investors in valuing a firm's earnings and net assets. The combined findings on analysts' interpretation and investors' valuation suggest that analysts fail to fully capture the implication of carryforwards on future earnings within their forecasting horizon.     

Woonruimte,huren en woonwensen van Amsterdamse Gezinnen in 1962

Summary This is an analysis of the sample survey returns of some 200 homogeneous households who were asked for both actual and desired housing accomodation and rent, for their intention to move and for their income. These households are divided into four groups by two family sizes and by the intention to move, and several relations are studied by a covariance analysis based on the individual household data. The main objects of the analysis are (i) to establish Engel curves for housing space (number of rooms) and quality (rent per room), (ii) to compare these relations for actual and desired values, and (iii) to assess what rent levels would be acceptable in the absence of rent control which is still enforced. The main result is that the households' wishes follow the same pattern as their actual conditions; the income elasticity of quantity demand for housing varies from .25 to .40 with family size and with the intention to move; for the desired accommodation the same elasticity is about .30. The income elasticity of housing quality (rent per room) is uniformly .35 for all households and for both actual conditions and the households wishes. The maximum acceptable rent level — which varies from 20% to 15% of income — is finally obtained by determining at what level desired rent and actual rent coincide so that the household does not envisage a further increase in housing expenditure.

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Gaarne betuig ik mijn dank aan de Gemeentelijke Woningdienst van Amsterdam, die de gegevens beschikbaar stelde; aan de heer M. F. Koeman, die de berekeningen uitvoerde en met name tot de laatste paragrafen van dit artikel veel bijdroeg; en aan de heer A. Pais, die het onderzoek met stimulerend commentaar begeleidde.     

Producing and Procuring Horticultural Crops with Chinese Characteristics: The Case of Northern China

The main goal of our paper is to understand what types of farmers have been able to participate in the horticultural revolution, how they interact with markets and how supply chains affect their production decisions and incomes. We also want to understand if the rise of supermarkets has changed supply chains. Our analysis uses spatially sampled data from 200 communities and 500 households in the Greater Beijing area. In contrast to fears of some researchers, we find small and poor farmers actively participate in the emergence of China’s horticulture economy. Moreover, there has been almost no penetration of modern wholesalers or retailers into rural communities.     

Book Reviews

Anne Booth (1998), The Indonesian Economy in the Nineteenth and Twentieth Centuries: A History of Missed Opportunities, Macmillan, London, and St Martin's Press, New York, pp. xvi + 377. Paper: US$ 19.95; cloth: US$ 79.95.

J. Thomas Lindblad (1998), Foreign Investment in Southeast Asia in the Twentieth Century, Macmillan, London, and St Martin's Press, New York, pp. xiii + 240. Paper: £49.95.

Adam Schwarz and Jonathan Paris (eds) (1999), The Politics of Post-Suharto Indonesia, Council on Foreign Relations Press, New York, pp. 150. Paper: US$17.95.

Arief Budiman, Barbara Hatley and Darnien Kingsbury (eds) (1999), Reformasi: Crisis and Change in Indonesia, Monash Asia Institute, Melbourne, pp. 402. A$24.95.

Hal Hill (1999), The Indonesian Economy in Crisis: Causes, Consequences and Lessons, Institute of South East Asian Studies, Singapore, pp. 150. S$22.50; US$14.90.

Terry Dwyer (ed.) and Barry Reece and Craig Emerson (contributors) (1999), Resource Tax Policy in Countries of the Asia Pacific Region, Asia Pacific Press, The Australian National University, Canberra. A$20.00; US$20.00.

Januar Achmad (1999), Hollow Development: The Politics of Health in Soeharto's Indonesia, Coombs Academic Publishing, Research School of Pacific and Asian Studies, The Australian National University, Canberra, pp. viii + 220. A$15.00 plus postage.

Terence H. Hull, Endang Sulistyaningsih and Gavin W. Jones (1999), Prostitution in Indonesia: Its History and Evolution, Pustaka Sinar Harapan, Jakarta, pp. 161. A$10.00.     

The Impact of Social Safety Net Programs on Household Savings in Colombia

This paper seeks to understand and quantify how social safety net programs impact household savings in developing countries, considering the case of Colombia using two complementary approaches. The first approach explores how the health regime affects savings in the country. The second evaluates the impact on savings of familias en acción, a major antipoverty conditional cash transfer program. The results suggest that the savings of informal households are higher than those of formal households, because, with little incentive to enter the formal job market, informal households need to cover slightly greater non‐covered risks. The results also show that familias en acción recipients save more than non‐recipients because recipients favorably adjust their expenditure patterns.     

Tariff valuation,transport cost and the establishment of trade preferences among developing countries

While there are various reasons for believing that the establishment of trade preferences among developing countries would convey important benefits, previous efforts along these lines have produced few concrete accomplishments. The preference-creating system proposed in this paper is based on the proposition that developing countries are often at a transport cost disadvantage in intra-trade and the following observations: (1) almost all developing countries employ a cost-insurance-freight (c.i.f.) valuation base for tariff assessment, and (2) tariffs in the developing countries are generally much higher than in developed countries and may range from 20 to 200% or more. From this, it is demonstrated that a situation exists in which the normal c.i.f. tariff base often has a potentially important discriminatory effect on intra-trade. Specifically, if customs duties are applied to an unfavourable transport margin, the tariff system will result in a higher duty collected on intra-trade than on shipments from a developed country. However, by shifting to a two-tier valuation base, the present system's discriminatory effects can be neutralized and preferences generated for developing countries. Simulations with international trade data support the proposition that the two-tier system has these desired effects.     

Book Reviews

Richard W. Baker, M. Hadi Soesastro, J. Kristiadi and Douglas E. Ramage (eds) (1999), Indonesia: The Challenge of Change, Institute of Southeast Asian Studies, Singapore; KITLV Press, Leiden, pp. xvii + 305. Cloth: S$76.00; US$49.00; Paper: S$49.90; US$32.90.

Edward Aspinall, Herb Feith and Gerry van Klinken (eds) (1999), The Last Days of President Soeharto, Monash Asia Institute, Monash University, Melbourne, pp. x + 171. A$24.95.

Geoff Forrester and R.J. May (eds) (1998), The Fall of Soeharto, Crawford House Publishing, Bathurst NSW, pp. x + 261. A$30.00.

Stefan Eklö f (1999), Indonesian Politics in Crisis: The Long Fall of Suharto, 1996–98, Studies in Contemporary Asia Series, no. 1, Nordic Institute of Asian Studies (NIAS), Copenhagen, pp. xii + 272. Cloth: £30.00; US$45.00; A$75.00; Paper: £12.99; US$19.95; A$33.00.

Jim Schiller (1996), Developing Jepara in New Order Indonesia, Monash Asia Institute, Centre of Southeast Asian Studies, Monash University, Melbourne, pp. xii + 312. A$29.95.

Richard Mathews (1999), A Business Survival Guide to Eastern Indonesia, North Australia Research Unit, The Australian National University, Darwin, pp. 189.     

Building Complementarities in Africa between Different Development Cooperation Modalities of Traditional Development Partners and China

Abstract: China's relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral trade in 2008 and US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino‐African relations also has an impact on the role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which has already led some traditional development partners to reduce their aid budgets and subsequently their Official Development Assistance (ODA) flows to Africa. The objective of this paper is to analyse different development cooperation modalities in Africa of traditional development partners and China. This requires identifying trends in aid, debt relief, general budget support, trade, preferential trade access, and investment flows of both traditional development partners and China. The paper advocates that complementarities can be built between these development modalities on a national, regional and global level. This would enhance development effectiveness, increase efficiency and create win‐win situations which would be beneficial to African countries, China and traditional development partners.