Earnings management and abnormal returns: Evidence from the 1970–1972 Price Control Regulations

We examine the association between abnormal returns and earnings management in the context of price control regulations to test the construct validity of the earnings management model. Abnormal returns are used as a market–based measure, and discretionary accruals are employed to measure earnings management. Our results support the hypotheses that (1) price control regulations affect firms' security prices negatively, (2) firms make income–decreasing discretionary accruals to increase the likelihood of price increase approval, and (3) firms that are affected most negatively by the regulations manage earnings more aggressively. We conclude that the earnings management model we use in this study is capable of predicting opportunistic discretionary accruals.     

Intertemporal Substitution and Terms-of-Trade Shocks

The paper examines the relationship between transitory terms‐of‐trade shocks and private saving. Using a model allowing for nonseparability between the consumption of tradables and nontradables, the paper estimates the intertemporal elasticity of substitution while accounting for the intratemporal elasticity of substitution between the consumption of tradables and nontradables. Empirical analysis of data for five industrial countries indicates that in response to transitory terms‐of‐trade shocks, intertemporal substitution of consumption and intratemporal substitution of consumption between tradables and nontradables both have large effects on private saving.     

DURATION MOMENTS AND YIELD CURVE MOVEMENTS

In this paper we will analyze the relationship between the value and duration moments of a cash flow and movements in the yield curve. We will show that for changes in the yield curve which can be related to tⁿ , the 1st order changes in the net present value of a cash flow are linearly dependent on the n + lth duration moments, and that the 2nd order changes are dependent on the sum of duration moments of order 2 n + 1 and 2 n + 2. We will use this relationship to tilt tracking portfolios so as to protect them against specific changes in the yield curve.     

Are the Best Small Companies the Best Investments?

Previous research finds that large companies previously judged to be excellent growth companies have subsequently been poor investments. We examine small companies selected by Business Week on the basis of multiple criteria used in annual articles featuring highly rated growth companies. We study the investment performance over the three years before eleven annual Business Week publications and the three years after publication. We find positive excess returns in the pre‐publication period, but negative excess returns in the post‐publication period. This reversal in investment performance appears to be due to a mean‐reversion tendency in operating performance, in which the earnings and the past rates of return on capital of such companies subsequently decrease significantly.     

Foreign Factor Ownership and Optimal Tariffs

In the presence of foreign factor ownership tariffs change not only the terms of (goods) trade but also income flows between countries. Assume that only the home country owns factors abroad. Then the optimal tariff is negative if and only if foreign factor ownership entails trade-pattern reversals. Trade-pattern reversals are neither a necessary nor a sufficient condition for a negative optimal tariff if the foreign country owns factors in the home country. Changes in the home country's tariff shift the foreign country's offer curve. This adds a new dimension to optimal tariff analysis.     

Working-time reduction and employment: experiences in Europe and economic policy recommendations

The paper seeks to evaluate the evidence on the employment effectsof the collective working-time reductions in Europe over thepast 20 years. While theoretical analyses produce contradictoryassessments, most empirical studies show positive employmenteffects but take insufficient account of these conditions underwhich the reductions in working time were implemented. Theseconditions for the success of collective working-time reductionsinclude an active training policy designed to minimise skillshortages in the labour market, the modernisation of work organisation,wage increases in conjunction with productivity gains and amore equal income distribution.