Valuation Implications of Investment Opportunities and Earnings Permanence

This study investigates the value-relevance of accounting earnings in the presence of investment (growth) opportunities after making two theoretical and methodological research design refinements. First, we test for the incremental effect of growth on firms earnings response coefficients after controlling for the extent of transitory earnings under the assumption that the value-relevance of earnings with respect to growth should be stronger when earnings are more permanent. Second, we perform comprehensive factor analysis using market-based and accounting-based measures to construct a composite proxy for investment opportunities. We find that firms investment opportunities and the relative permanence of current earnings affect the value-relevance of those earnings. Additionally, we find that the interaction between permanent earnings and investment opportunities produces an even stronger price response to earnings.     

Varietal Licensing Standards and Canadian Wheat Exports

Canada's wheat grading system is largely based on visual criteria and it is based on relatively high quality standards. A strict varieties licensing system exists to maintain the integrity of the grade standards. One of the consequences of the licensing system is that higher yielding, lower or different quality wheats have not been grown in Canada until recently. The basic objective of this paper is to examine some of the consequences of the regulatory strategy of limiting wheat production to the traditional high quality wheats. This question is analyzed in the context of important changes in the international grain markets. Using a partial equilibrium trade model this paper estimates that if higher yielding wheats were permitted to be grown, annual producer gains would be 5 to 17 percent of current net farm income.
Le classement des blés au Canada est basé sur des critères visuels qui sont de hautes qualités. Le système actuel d'homologation des variétés est tel que l'intégrité de ce système est maintenue. En conséquent, ce système n'a pas encouragé la cultivation des blés de hauts rendements ou des varietés différentes que tout récemment. L'objectif principal de cette étude est d'examiner quelques unes des conséquences de la stratégic de la réglementation visant à limiter la production du blé aux variétés de hautes qualités. Cette question est adressée dans le contexte des changements importants qui ont eu lieu dans le marché international des grains. A l'aide d'un modèle d'équilibre partiel des échanges, la présente étude démontre gu'en permettant la production des blés de hauts rendements, le gain annuel aux producteurs serait de 5 à 17 pourcent du revenue agricole net.     

Ex Ante Skewness and Expected Stock Returns

We use option prices to estimate ex ante higher moments of the underlying individual securities’ risk‐neutral returns distribution. We find that individual securities’ risk‐neutral volatility, skewness, and kurtosis are strongly related to future returns. Specifically, we find a negative (positive) relation between ex ante volatility (kurtosis) and subsequent returns in the cross‐section, and more ex ante negatively (positively) skewed returns yield subsequent higher (lower) returns. We analyze the extent to which these returns relations represent compensation for risk and find evidence that, even after controlling for differences in co‐moments, individual securities’ skewness matters.     

The cost of agricultural production risk

We examine the relative influence of preferences and technology on producers' ex ante willingness to pay for a reduction in production risk. A risk averse producer pays both an Arrow-Pratt risk premium to stabilize income and a ‘production premium’ to stabilize yield. Using soil-nitrate risks as our motivating example, we demonstrate that the production premium accounts for 40-85% of producers' willingness to pay for risk reduction. These results demonstrate the relative importance of technology over risk preferences when estimating the costs of agricultural production risk.     

Tax incentives for inefficient executive pay and reward for luck

I study the economic consequences of tax deductibility limits on salaries for the design of incentive contracts. The analysis is based on an agency model in which the firm’s cash flow is a function of the agent’s effort and an observable random factor beyond the agent’s control. According to my analysis, limiting the tax deductibility of fixed wages has two consequences. The principal rewards the agent on the basis of the observable random factor and adjusts the amount of performance-based pay in the optimal incentive contract. The new contract can have weaker or stronger work incentives than without the tax. The theoretical findings have implications for empirical compensation research. First, the analysis shows that reward for luck can be the optimal response to recent tax law changes, whereas earlier empirical literature has attributed this phenomenon to managerial entrenchment. Second, I demonstrate that a simple regression analysis that fails to control for separable measures of luck is likely to find an increased pay for performance sensitivity as a response to the introduction of tax deductibility limits on salaries even if the pay for performance sensitivity has actually declined.     

Geographical downscaling of outputs provided by an economic farm model calibrated at the regional level

There is a strong need for accurate and spatially referenced information regarding policy making and model linkage. This need has been expressed by land users, and policy and decision makers in order to estimate both spatially and locally the impacts of European policy (like the Common Agricultural Policy) and/or global changes on farm-groups. These entities are defined according to variables such as altitude, economic size and type of farming (referring to land uses). European farm-groups are provided through the Farm Accountancy Data Network (FADN) as statistical information delivered at regional level. The aim of the study is to map locally farm-group probabilities within each region. The mapping of the farm-groups is done in two steps: (1) by mapping locally the co-variables associated to the farm-groups, i.e. altitude and land uses; (2) by using regional FADN data as a priori knowledge for transforming land uses and altitude information into farm-groups location probabilities within each region. The downscaling process focuses on the land use mapping since land use data are originally point information located every 18 km. Interpolation of land use data is done at 100 m by using co-variables like land cover, altitude, climate and soil data which are continuous layers usually provided at fine resolution. Once the farm-groups are mapped, European Policy and global changes scenarios are run through an agro-economic model for assessing environmental impacts locally.     

Consumer Preferences for Fresh Tomatoes in Benin using a Conjoint Analysis

Constraints related to the technical and socioeconomic aspects of adopting tomato varieties are well documented. However, preferences relating to the demand for this fruit are rarely studied. In fact, demand for the different varieties of tomatoes might be related to consumers’ preferences for the extrinsic (color, size) and intrinsic (taste, nutritive value, water content) characteristics specific to each variety. It is therefore indispensable to determine the characteristics of tomatoes preferred by consumers. We examine consumers’ preferences for tomato attributes among a sample of 600 consumers in four representative markets in the main cities in southern Benin. The study also identifies potential segments of consumers and the market shares of each profile for each segment. The study identifies four potential tomato market segments, two of which have a strong preference for local tomatoes, namely, those that can be conserved for long periods and those with a firm consistency.     

On the rebound: estimating direct rebound effects for Australian households

Reducing dependence on fossil fuels by decreasing energy consumption is a common environmental policy. One mechanism used to achieve this is to encourage increased energy efficiency. However, improving efficiency may have an opposing effect and cause an increase in energy consumption if the intensity of use changes. This phenomenon is known as the rebound effect. We estimate direct rebound effects for energy use in Australia based on both aggregate residential energy use data and on household energy expenditure data. Our approach implements a new methodology developed by Hunt and Ryan (2014, Catching on the rebound: Why price elasticities are generally inappropriate measures of rebound effects. Surrey Energy Economics Discussion Paper Series SEEDS 148; 2015, Energy Economics 50, 273) that explicitly relates energy service use with energy source demand and directly incorporates measures of efficiency changes. The results indicate that the rebound effect is relatively high for energy use by Australian households. Due to the unique nature of our household data set, we can examine the influence of demographic and housing characteristics. We find that low‐income households and households with vulnerable members have the largest rebound effects. The relatively large rebound effects found here suggest that consumers gain from efficiency by improved energy services, and thus, policy targeting energy efficiency is not likely to be successful at reducing energy consumption.     

Managing The Volatility Of Gaap Earnings

Abstract

The adoption of Statement of Financial Accounting Standards No. 97 (SFAS 97) eliminated the “lock-in” concept introduced in SFAS 60. Since many of the actuarial assumptions used in the calculation of the deferred acquisition cost (DAC) asset are difficult to predict over an extended period of time, “dynamic unlocking” was a sensible solution. Although this “dynamic unlocking” keeps the assumptions in line with recent experience, it comes at a cost—increased volatility of GAAP earnings. Some of the causes of this volatility are warranted since it accentuates the effects on earnings due to certain changes in the underlying experience. Other causes of this volatility may be unwarranted because of a misapplication of the principles underlying SFAS 97 and SFAS 120 or the manner in which changes in experience were reflected. In addition, most analysts expect the amortization of deferred acquisition costs to increase when earnings are better than expected. Conversely, analysts expect the amortization of deferred acquisition costs to decrease when earnings are worse than expected. Often the amortization of deferred acquisition costs behaves in a manner contrary to their expectations. This article analyzes what causes this volatility, explains why the amortization can behave contrary to expectations, and suggests several techniques for minimizing these unwarranted results.