How Disaggregation Enhances the Credibility of Management Earnings Forecasts

An important problem facing managers is how to enhance the credibility, or believability, of their earnings forecasts. In this paper, we experimentally test whether a characteristic of a management earnings forecast—namely, whether it is disaggregated—can affect its credibility. We also test whether disaggregation moderates the relation between managerial incentives and forecast credibility. Disaggregated forecasts include an earnings forecast as well as forecasts of other key line items comprising that earnings forecast. Our results indicate that disaggregated forecasts are judged to be more credible than aggregated ones and that disaggregation works to counteract the effect of high incentives. We also develop and test an original model that explains how disaggregation positively impacts three factors that, in turn, influence forecast credibility: perceived precision of management's beliefs, perceived clarity of the forecast, and perceived financial reporting quality. We show that forecast disaggregation works to remedy incentive problems only via its effect on perceived financial reporting quality. Overall, our study adds to our understanding of how managers can credibly communicate their expectations about the future to market participants.     

NEGOTIATING A RESPONSE TO CLIMATE CHANGE: ROLE OF BIOLOGICAL EMISSIONS

Researchers have attributed 15 percent of global methane releases to emissions of methane from enteric fermentation in animals (wild and domestic). Bovines contribute approximately two-thirds of this amount. Since methane is a potent greenhouse gas, this source frequently is a target for emission reductions. However, the existing literature overstates the importance of bovine methane as a greenhouse gas by as much as 800 percent. Estimates to date have focused solely on gas emissions, ignoring the biological and chemical cycling that removes carbon from the atmosphere. The analysis presented here demonstrates the importance of these cycles in assessing the overall greenhouse effect of biological methane sources such as rice production, termites, and bovine animals. Ignoring this cycling results in overemphasizing the role of developing countries' total contributions to climate change. In economic terms, the analysis shows that reducing CO2 emissions from energy use in industrialized countries is more efficient than reducing net greenhouse methane from animal sources.     

Autonomy and Political Strategy: Building the Other Superpower

Recently, from 21–25 October 2004, I participated in the Norway Social Forum (NSF). It was the most successful regional social forum that I have attended. The forum expressed what I call an autonomist electoral politics. Such a politics combines short‐term electoral tactics with long‐term social movement autonomy. Autonomist electoral politics outlines the direction that forthcoming local, regional and national forums should take. I use the example of the NSF to respond to Peter Marcuse’s article on social forums and social movements. Le Forum social norvégien (FSN) s’est tenu du 21 au 25 octobre 2004, et ce fut le forum social régional le plus réussi auquel j’ai participé. Il a exprimé ce que j’appelle une politique électorale autonomiste. Une telle politique allie des tactiques électorales à court terme et une autonomie des mouvements sociaux à long terme. Elle définit l’orientation que devrait prendre les forums locaux, régionaux et nationaux à venir. J’utilise ici l’exemple du Forum social norvégien pour répondre à l’article de Peter Marcuse sur les forums et mouvements sociaux.     

OIL SPILL REDUCTION AND COSTS OF SHIP DESIGN REGULATION

The 1990 Oil Pollution Act mandates double hulls for new ocean-going tankers unless the U.S. Coast Guard can find superior designs to reduce oil spill risks. This paper, based on a 1991 National Research Council (NRC) study of alternative tanker designs, examines policy implications of prescribing construction standards. Alternative construction designs for tankers, such as that of the Exxon Valdez, have markedly differing effects both on oil transport costs and on the risks of future oil spills. Annual costs of shipping oil to the United States would rise by anywhere from $462 million to $2,047 billion, depending on which of five plausible designs are selected. The chief objective of such designs is to reduce the outflow of oil occurring during groundings and collisions. Over the past decade, an average of about 7,500 tons have spilled annually from these causes in U.S. waters—representing roughly 20 percent of transportation-related maritime oil pollution in 1990. NRC-sponsored simulation research indicates that the various designs likely would prevent 2,600–5,600 tons from being spilled in a typical year. The paper presents cost-effectiveness comparisons of the alternatives, contrasting these with available information on societal benefits per ton of oil spill avoided. Costs appear substantial relative to benefits, and lawmakers' emphasis on design standards deflects attention from alternative risk reduction strategies—e.g., operation and maintenance measures—that warrant equal attention.     

WAGE DETERMINATION UNDER NON-LINEAR TAXES: ESTIMATION AND AN APPLICATION TO PANEL DATA

This paper studies wage determination under piecewise lineartaxes in a unionised labour market. The purposes of the paperare to model how piecewise linear taxation affects the choiceset of the union, and to take this information into accountin the estimation. The empirical application is based on paneldata. Piecewise linear taxes necessitates formal assumptionsabout the sources of randomness, and we find that both unobservedheterogeneity and measurement errors in the wage rate are importantto consider in the estimation. We also find that taxes are likelyto have a non-negligible impact on the (pre-tax) wage rate.     

Short-Sales Constraints and Price Discovery: Evidence from the Hong Kong Market

Short‐sales practices in the Hong Kong stock market are unique in that only stocks on a list of designated securities can be sold short. By analyzing the price effects following the addition of individual stocks to the list, we find that short‐sales constraints tend to cause stock overvaluation and that the overvaluation effect is more dramatic for individual stocks for which wider dispersion of investor opinions exists. These findings are consistent with Miller's (1977) intuition and other optimism models. We also document higher volatility and less positive skewness of individual stock returns when short sales are allowed.     

Monetary and Fiscal Policy Switching

A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. A computational model illustrates that because agents' decision rules embed the probability that policies will change in the future, monetary and tax shocks always produce wealth effects. When it is possible that fiscal policy will be unresponsive to debt at times, active monetary policy (like a Taylor rule) in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks. The paper also considers the implications of policy switching for two empirical issues.     

Factors Related to Employees’ Desire to Join and Leave Unions

Regression analyses based on a sample of 3372 nonunionized and unionized employees showed that, while the desire to join a union is associated with a wide range of work attitudes, perceived company performance, and facets of satisfaction, one's desire to leave one's union is associated with a narrow range of economic concerns. Implications of the findings are discussed in light of the declining unionization rate in the United States.