The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers

This study examines characteristics and valuation of claim loss reserves of property casualty insurers. Using SEC disclosures of revisions (development) in loss reserve estimates, we document substantial serial correlation in loss reserve development, indicating that reported loss reserves do not fully reflect available information, consistent with management exercising discretion over reported loss reserves. We find that loss reserve development reported one year after the balance sheet date has significant explanatory power for firm value incremental to book value of equity and earnings, suggesting investors at least partially identify management's influence on reported loss reserves, and adjust firm values accordingly.     

Sharing Demand Information in a Value Chain: Implications for Pricing and Profitability

While it is known that information exchange (IE) in a value chain improves resource coordination, scant attention has been paid to two issues. The first issue is the effect of relative bargaining strengths of the parties on whether and how IE will be implemented. The second issue is whether a resource-based costing system is adequate to motivate the implementation of information exchange. In this paper, we model a value chain consisting of a manufacturer and a retailer, where the retailer gets (private) demand information that has the potential of improving the manufacturers resource decisions. In this model, it is always beneficial for the value chain to implement IE. We show that in a monopsony or in a bilateral monopoly when the retailer has sufficient bargaining power, IE can be implemented if and only if the wholesale price compensates him for the loss of the information rent that he would get without IE. Using this model as the benchmark, we also examine other settings where the retailers have less bargaining power due to competition or size. In such settings, even though the retailers are better informed, the manufacturer can implement the IE regime costlessly and appropriate the information rent partially or fully. In effect, the manufacturer benefits both by improved resource coordination and by reduced payment for information rent. In all these settings, we find the retailer will not be motivated to adopt IE solely by a resource-based costing and pricing system.     

The Differential Persistence of Accruals and Cash Flows for Future Operating Income versus Future Profitability

Prior research provides evidence that a higher proportion of accrued relative to cash earnings is associated with lower earnings performance in the subsequent fiscal year. The result has been widely interpreted as indicative of higher levels of operating accruals relative to cash flows foreshadowing a subsequent earnings reversal, and thus signaling earnings management. We note, however, that earnings performance in prior studies is typically defined as one-year-ahead operating income divided by one-year-ahead invested capital, or a measure of profitability. We find that accruals are more highly associated than cash flows with invested capital in the denominator of the profitability measure. In contrast, accruals and cash flows have no differential relation to one-year-ahead operating income. The evidence is not consistent with accruals having a reversal effect on earnings. This suggests that the lower persistence of accruals versus cash flows may not be due to earnings management but may rather be due to the effect of growth on future profitability.     

我国上市公司盈利水平与市场价值关系的实证检验

本文以托宾Q值（Tobin‘sQ）作为衡量上市公司市场价值的指标，探讨了我国上市公司盈利水平与其市场价值的内在关系，结果表明二者基本呈正向变化关系，但也出现了二者背离的现象。本文最后分析了股票市场特定时期市场价值背离的原因。     

Implications of Components of Income Excluded from Pro Forma Earnings for Future Profitability and Equity Valuation

Abstract:  This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profitability as predicted by the Ohlson (1999) model? Findings are generally consistent with the market-inefficiency results presented in Doyle et al. (2003) . Total exclusions are valued negatively by the market despite the prediction that total exclusions will be valued positively. Valuation results also suggest that stocks with positive other exclusions are overpriced.     

Discussion of “The Differential Persistence of Accruals and Cash Flows for Future Operating Income versus Future Profitability”

Fairfield et al. (2003a, this issue) suggests that the accrual effect in Sloan (1996) is at least partly due to the fact that accruals signify an increase in (less-productive) net operating assets. Thus, the paper is a useful and thought-provoking reminder that accruals have both earnings and balance sheet effects. However, the impact of the empirical results is diminished by the lack of a convincing story that ties and grounds these results to other knowledge in the area.     

股票的权益比、账面市值比及其公司规模与股票投资风险——以上海证券市场的10只上市公司股票投资风险为例

最近20年来一些学者对CAPM理论模型检验的结果大都表明,股票的投资风险(或其收益)并非像该模型描述的那样由β系数唯一决定,还存在其他因素在股票投资风险中起影响作用。国内学者借助于横截面法的回归模型研究指出,股票的权益比率(D/E)、账面/市值价值比(BV/MV)与公司规模是决定股票投资风险除β系数外的三个主要经济变量。为了验证他们理论的正确性与精确性,该文率先运用模糊数学的聚类分析法,对上证市场随机选取10只样本股票的D/E、BV/MV、公司规模与股票投资风险相关性进行实证分析,并与用回归分析方法得到的β指数与风险关系进行比较研究。经研究进一步证实,股票投资风险并非唯一由β系数决定,股票的D/E、BV/MV及其公司规模应当成为β系数以外影响股票投资风险不可忽视的重要因素。本文研究的意义在于建议股票投资者,衡量股票投资风险不仅要考察股票的β系数,还应进一步考察股票的D/E、BV/MV和公司规模等。     

Capital and Risk Revisited: A Structural Equation Model Approach for Life Insurers

The role of risk in the capital structure decision of firms is a vast topic in finance. Commonly, models of the interrelationship between risk and capital enumerate as many risk factors as possible by appropriate proxies, with the goal of detailing their individual effects. In this study of the life insurance industry for 1994 through 2000, we take a broader, holistic view of enterprise risk, identifying two groups of insurer risk factors that arise from the major activities of life insurers: investing and underwriting. We call the group of risk factors associated with investing asset risk, and the group associated with underwriting product risk. After specifying other important determinants of capital structure as controls, we allow all other risk factors to find expression in residual error. Within this framework, our focus is to compare two candidate measures for the role of proxy for asset‐related risks. One measure, called regulatory asset risk (RAR), derives from the regulatory tradition of concern with solvency and is related to the C‐1 component of risk‐based capital. The other measure, called opportunity asset risk (OAR), is motivated by traditional finance concerns with market risk and reflects volatility of returns. Product‐related risks are proxied by underwriting exposures in different product lines. We employ structural equation modeling (SEM), which uses longitudinal factor analysis. SEM is an innovative technique for such studies, in dealing effectively with multiple structural equations, autocorrelated panel data, unobserved underlying factors, and other issues that are not simultaneously addressed in other methodologies. We find that RAR and OAR are not equivalent proxies for asset risks. Although overlapping to some extent, each illuminates different aspects of the asset risk–capital interrelationship. In particular, RAR does not seem to affect the capital structure decision of small firms, although OAR does. We interpret this to suggest that small firms as a whole are not as sensitive in their capital decisions to the proxy of regulatory concerns as to the proxy of market opportunity. This contrasts with large insurers, for whom both RAR and OAR have significant effects on capital that comport with the finite risk hypothesis. More detailed analysis suggests that the lack of effect of RAR for small insurers may result from RAR's proxying some factors that induce finite risk for part of the small insurer sample, and other factors that favor the excessive risk hypothesis.     

The Dynamics of Security Trades,Quote Revisions,and Market Depths for Actively Traded Stocks

We examine the dynamics of return volatility, trading volume, and depth—in an intraday setting for a sample of actively traded NYSE and NASDAQ stocks. We show that depth is a useful intervening variable and mitigates the impact of trading activity on price volatility. Furthermore, depth is affected by the perception of prevailing information asymmetry between informed and uninformed traders. We demonstrate empirically that the NYSE supplies greater depth under conditions of high, perceived information asymmetry as compared to NASDAQ. NASDAQ makes up for this deficiency by its capability of managing large volume shocks without a major decline in depth.JEL Classification: C32, D82, G10     

The Market Valuation of Bank Shares: With Implications for the Value Additivity Principle

This paper examines the capital market's pricing of cash flow producing activities of U.S. banks. A multiple regression methodology is used in conjunction with an extensive, cross section‐time series data set spanning the years 1974 through 1991. This data set and methodology provide the basis for a unique test of the value additivity principle as well as insight into how banks have responded to the changing technological, competitive and regulatory environments. Overall the results support the value additivity principle until 1983. However, statistically significant deviations from the value additivity principle are identified across all subgroups beginning in 1984. Important product innovations, changing technology, and regulatory and competitive changes appear to have provided banks with greater opportunities and incentives for the expansion and linkage of cash flow producing activities.     

股指期货市场的风险管理:国际比较与启示

股指期货作为20世纪80年代发展起来的新型金融衍生工具,已经成为发达金融市场的重要组成部分.本文在分析股指期货风险特性的基础上,介绍了世界各国股指期货市场的主要监管模式、风险管理特征和相关制度,以此为鉴提出了我国加强股指期货市场风险监管的建议.     

Future Stock Performance of Oil and Gas Firms Conditional on the Imputed Value of Reserves

Review of Quantitative Finance and Accounting - Harris and Ohlson (1990) provide evidence suggesting market inefficiencies in the pricing of oil and gas firms in the 1979–1984 period. This...     

Bank Consolidation, Internationalization, and Conglomeration: Trends and Implications for Financial Risk

This paper documents trends in bank activity, consolidation, internationalization, and financial firm conglomeration with data on more than 100 countries, and explores the extent to which financial firm risk and systemic risk potential in banking are related to consolidation and conglomeration. The relationship between consolidation, conglomeration and financial risk is documented using financial data on the largest 500 financial firms worldwide and on large banks in about 90 countries. We find that (a) large conglomerate firms did not exhibit levels of risk‐taking lower than smaller and specialized firms in 1995, while they exhibited higher levels of risk‐taking in 2000; (b) highly concentrated banking systems exhibited levels of systemic risk potential higher than less concentrated systems during the 1993–2000 period, and this relationship has strengthened during the 1997–2000 period. We outline research directions aimed at explaining why bank consolidation and conglomeration may not necessarily yield either safer financial firms or more resilient banking systems.     

Restructuring and Firm Value: The Effects of Profitability and Restructuring Purpose

This study extends prior research on the information content of restructuring charges. We find that the relationship between restructuring activities and returns during the restructuring charge year is different for loss firms than for profit firms. Restructurings that are primarily intended to either eliminate personnel or exit a line of business are positively associated with returns of the loss firms, suggesting that investors view these activities as value-increasing. In contrast, common stock returns of profit firms exhibit a nonpositive association with restructuring charges. Overall, our results point to the role of the context and the content of the restructuring announcement in the market's assessment of the value relevance of restructuring charges reported in the financial statements.     

资本充足率、市值资产比例与银行风险

基于风险和回报的基本关系,本文检验了以会计指标为主要计量尺度的资本充足率和以市场指标为计量手段的市值资产比例是否能够代表银行风险。研究发现,会计指标在没有被操控的情况下可以预测银行风险。虽然资本充足率也能够反映银行风险,但市值资产比例对银行股价回报的解释力更强,尤其在危机时期。本文建议,监管机构依然可以坚持选用资本充足率这样的会计指标监控银行风险,同时辅以市场指标,因为中国资本市场受到人为因素和政策因素干扰较多,股票价格不一定如实反映内涵价值,还应该坚持以会计指标为主。     

市场风险计量与控制：国际经验及对我国商业银行的借鉴意义

市场风险计量与控制,是整个市场风险管理体系的核心,也是目前国内商业银行推进市场风险管理的难点。本文在借鉴巴塞尔委员会有关要求及国际商业银行实际做法的基础上,针对目前国内商业银行在市场风险计量和控制方面存在的主要问题,提出相应的政策建议,以期进一步提高国内商业银行市场风险管理水平。     

Inco Ltd.: Market Value, Fair Value, and Management Discretion

We examine management discretion to decide when and how much to write down an asset, in a unique case where a tracking stock provides an observable market value for the asset. We find that, despite market evidence that Inco Ltd.'s financial statements substantially overvalued the Voisey's Bay nickel mine throughout 1997 to 2000, management chose not to write down the mine until 2002. Inco management used an independent fairness opinion to justify its December 2000 redemption of the tracking stock at 25% of its initial value, indicating almost surely that Inco management was aware of the generally accepted accounting principles (GAAP) impairment. This case illustrates that GAAP's reliance on undiscounted cash flows for impairment decisions allows huge unrecorded disparities between book and market value. The management discretion exercised in this case provides a concrete example of the subjectivity inherent in fair valuation.     

深市小微市值账户近五年盈亏情况报告

对2007年1月1日至2011年12月31日五年的登记结算数据进行分析显示:五年间深市证券账户盈利621.95亿元,所有账户中仅机构账户总体盈利。从盈亏账户比重来看,机构账户盈利占比最高,个人账户中,微型市值账户盈利占比最高。个人账户尤其是小微市值账户ST股持股比重高于机构账户,而深成指持股占比远低于中大市值账户和机构账户。并且,小微市值账户的交易频率远低于中大市值账户,而持股集中度高于中大市值账户与机构账户。小微市值账户的开户时间越早、投资经验越丰富、年龄越大,其盈利能力相对越强;反之,交易越频繁、投资越分散,盈利能力则随之降低。其他类型账户与小微市值账户的情况大致相同。