Are Investors Misled by “Pro Forma” Earnings?*

This paper uses stock market data to investigate the popular claim that investors are misled by the “pro forma” earnings numbers conspicuously featured in the press releases of some U.S. firms. We first document the frequency and magnitude of pro forma earnings in press releases issued during June through August 2000, and describe the 433 firms that engaged in this financial disclosure strategy. Our test period predates public expressions of concern by trade associations and regulators that pro forma earnings may mislead investors and the subsequent issuance of guidelines and rules on the disclosure of pro forma earnings numbers. We use two complementary approaches to determine whether the share prices that investors assign to pro forma firms are systematically higher than the prices assigned to other firms. Our market‐multiples tests for differences in price levels find some evidence suggesting that pro forma firms may be priced higher than firms that do not use the disclosure strategy. This apparent overpricing is not, however, related to the pro forma earnings numbers themselves. Our narrow‐window stock returns tests reveal no evidence of a stock return premium for pro forma firms at the quarterly earnings announcement date. Collectively, the results cast doubt on the notion that investors are, on average, misled by pro forma earnings disclosures despite the widespread concern expressed in the financial press and by regulators.     

A Cost Function Approach to Dynamic Duality: An Application to the US Cigarette Manufacturing Industry

The dynamic duality econometric approach with the case of multiple outputs is applied to the US cigarette manufacturing industry to test for the presence of adjustment costs and quasifixed inputs with regard to stocks of capital and tobacco. Capital and tobacco stocks are found to be quasi-fixed inputs and the empirical results indicate that there are significant adjustment costs associated with adjusting these inputs. Short- and long-run own- and cross-price elasticities of factor demands are estimated for domestic and imported tobaccoes, materials, tobacco stocks, and capital. Output demand elasticities are also estimated. The two outputs, cigarettes produced for export and for the US market, are examined for equality of marginal costs. No evidence of differences in marginal costs was found. There is evidence that government restrictions on advertising have negative effects on output demand.     

The Cyclic Behavior of the U.S. Lodging Industry

A recently constructed data series suggests that the hotel industry has experienced two rather large building booms from 1969 to 1994. By contrast, hotel demand seems to move closely with the United States economy, at a much higher cyclic frequency. Occupancy and room rental rates follow the slower movements in supply. A structural model is estimated over this series which displays long lags between occupancy and room rental rate changes, as well as between room rental rates and new supply. These lags create a system of difference equations that is close to being dynamically unstable. Forecasting forward with smooth economic growth, yields a new and even larger future building boom.     

Restructuring FDI policy in emerging economies: The republic of Korea case

This article presents several frameworks for examining the effect of a national financial crisis as a stimulus for economic reform and applies them to the Korean case 1997–2001. The author lists significant dimensions of reform and restructuring, presents a schema showing macro reform measures and some possible micro ramifications regarding a country's policies toward incoming foreign direct investment, and extends the schema to the concept of a trade‐off between macro and micro determinants of a country's attractiveness to foreign direct investment. There is also a chart highlighting the extent of government allowance of foreign equity participation. The author uses all these concepts to analyze the Republic of Korea's response to the financial crisis of 1997–1999. © 2005 Wiley Periodicals, Inc.     

Taiwan aboriginal ecotourism: Tanayiku Natural Ecology Park

This paper discusses research into an ethno/ecotourism site developed by the Tsou nation of southern Taiwan. The Tanayiku Natural Ecology Park receives approximately 450,000 tourists annually. This paper assesses, from a poststructuralist perspective, the theoretical implications of what is termed an “ecocultural renaissance”. It shows that the park functions in two contradictory ways. First, it is a site of geopolitical resistance to colonization for the Tsou. Second, it is as a site of topological consumption—which is, effectively, continued colonization—by tourists. Paradox notwithstanding, the paper discusses why Tanayiku represents a rare example of a successful community-based ecotourism operation owned and operated exclusively by an aboriginal group.     

Rotterdam model versus almost ideal demand system: will the best specification please stand up?

The Rotterdam model and the Almost Ideal Demand System (AIDS) are often applied in consumer demand systems modeling. Using Monte Carlo techniques, we determine which model performs best in recovering the true elasticities of demand. The AIDS model is usually used in linearized form. Since the Rotterdam model is also linear in a very similar form, comparison of the Rotterdam model and the AIDS model has been the subject of much speculation in the literature. We not only compare the linearized AIDS model with the Rotterdam model, but also with the full nonlinear AIDS. Copyright © 2008 John Wiley & Sons, Ltd.