The Number of Factors in Security Returns

Both factor analysis of security returns and the analysis of eigenvalues seem to indicate that a market factor explains the major part of security returns. We find that such evidence is consistent with an economy where there are in fact k “equally important” priced factors; eigenvalue analysis in the context of such an economy will lead an investigator to the false inference that the one important “factor” is the return on an equally weighted market index.     

Union Representation Elelctions and Firm Profitability

Union representation elections are associated with significant declines in firm profitability. In addition to the significant mean effect of union elections on the equity value of firms, there exists substantial variation in the magnitude of equity losses across individual election events. Cross-sectional variation in shareholder equity losses can be explained by the labor intensity of the firm, the size of the union wage premium and fraction of workers organized in "the firm's industry,." the presence or absencse of right-to-work lows in the state where the election is held, the member of workers covered in the representaion election, and the number of previous union representation election in the firm. The empirical results indiacte the equity losses are the greatest in industries where union wage gain are the highest and unionization rates are the largest, and in the most labor-intensive firms, independent of the size of the bargaining unit involved in the election. The latter result indicates the presence of union spillover effects.     

Eye on the Prize:Directions for Accounting Research

Accounting is a recognized field of research,with established journals and faculty promotion criteria that emphasize publication in those journals.Yet young researchers find the field hard to navigate.Accounting research lacks definition;there is not common agreement about what accounting research is all about.Researchers sometimes fall into camps that disagree,with dismissals of others' endeavors withit's not accountingorthat's not what accounting is about.While conflicting schools of thought are stimul...     

The Value of Imputation Tax Credits on Australian Hybrid Securities

Hybrid securities are becoming an increasingly important component of the capital structure of Australian firms. While displaying characteristics of both debt and equity, one principal equity attribute of hybrids is their ability to pay franked dividends. This enables resident domestic investors to claim corporate tax payments as a credit against personal tax obligations under Australia's dividend imputation tax system. This paper estimates a value for the ‘franking credits’ that attach to hybrid securities by examining stock price changes around ex‐dividend dates. We add to the literature that examines the ex‐day price changes of ordinary shares (OS) in that the hybrid securities we examine have high dividend yields and are relatively insensitive to market movements. Therefore the signal‐to‐noise ratio is much higher than for OS. Our analysis reveals that cum‐dividend day prices on hybrid securities do not include any value for franking credits. This result is consistent with the notion that the price‐setting investor in the Australian market is a foreign investor who places no value on franking credits.     

What do Australian Annual Reports Say About Future Earnings?

Prospective earnings information in Australian firms' annual reports has been claimed to be of sufficient importance to warrant its statutory requirement, or at least its "active encouragement". With the introduction of AASB 1039 Concise Financial Reports, management discussion and analysis is required in some circumstances, although there is no explicit requirement to provide prospective earnings disclosures. A survey of a sample of ASX-listed firms shows that about 25% include some form of earnings forecast, although most are qualitative, while even a coarse measure of their accuracy suggests they are relatively unreliable. These results give rise to some concern that encouraging the provision of prospective earnings data may not necessarily assist investors.     

Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration

Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SEC requirement, since overturned, which required major hedge funds to register as investment advisors and file Form ADV disclosures. Leverage and ownership structures suggest that lenders and equity investors were already aware of operational risk. However, operational risk does not mediate flow‐performance relationships. Investors either lack this information or regard it as immaterial. These findings suggest that regulators should account for the endogenous production of information and the marginal benefit of disclosure to different investment clienteles.     

Combining Earnings and Book Value in Equity Valuation*

It is common to apply multipliers to both earnings and book value to calculate approximate equity values. However, applying a price-earnings multiplier or a price-to-book multiplier typically produces two valuations and the analyst is left with the question of how to combine them into one valuation. This paper calculates weights that combine the valuations and shows that these weights vary over the difference between earnings and book value, doing so systematically over time. When earnings are small compared to book value, the weights are different from when earnings are large relative to book value, and they vary in a nonlinear way over the difference between the two. The weights also combine forecasts of future earnings, based on earnings and book value separately, into one composite forecast. The paper calculates a second set of weights to ascertain how the two numbers are combined to forecast one-year-ahead earnings and three-years-ahead earnings. The calculated weights are applied out of sample to ascertain their predictive ability against other benchmarks.     

The Development of Agrarian Capitalism in Post‐Soviet Russia

A core set of criteria have been met, so that it is accurate to speak of an agrarian capitalist system in Russia. The development of agrarian capitalism carries with it increased stratification, which is analysed along five dimensions: earned income, land expansion, use of credit, income from food sales and income from household enterprise. The paper demonstrates increasing differentiation between households, between professional cohorts and within professional cohorts. The data showing stratification within professions suggest that intra‐cohort stratification is driving most of the inter‐cohort stratification. The Russian model of agrarian capitalism and its processes of stratification have yielded a bifurcated countryside in which a thin stratum of ‘super winners’ has emerged. Economic processes have developed beyond simple stratification and have created the basis from which a rudimentary class structure appears to be forming.