EARNINGS EXPECTATIONS, FIRM SIZE, AND THE INFORMATIVENESS OF STOCK PRICES

The notion that prices impound a wide array of information, including market expectations, has led to earnings forecast models conditioned on prices. Yet, presumably, analysts' forecasts capture both public information and certain private information not previously impounded in prices. Accordingly, price-based models are seemingly an inefficient, and less effective, source of expecta-tions. This article investigates this hypothesis using financial analysts', price-based, and naive forecasts. Results indicate that analysts' forecasts (1) are at least as accurate as price-based and naive models, and (2) yield better expectations for market tests relating returns and earnings. These inferences are robust across different information environments. The evidence suggests that analysts either possess private information or are more effective information processors, or both.     

Common Stock Returns in Corporate Takeover Bids: The Case of Brokerage House Acquisitions

This paper examines the common stock returns of three groups of bidders that purchased brokerage houses. Only in the cases of horizontal mergers, one brokerage house purchasing another, are there abnormal returns associated with the purchase. Neither bank holding company bidders nor non-financial bidders gain significantly when purchasing a brokerage house. Bank holding company bidders face considerable regulatory delays, and these economic disturbances may eliminate their gains. Bank holding company expansion into these non-bank activities does not appear, at the time of announcement, to either hurt or benefit them; hence, this expansion does not appear to further the loss exposure of the Federal Deposit Insurance Corporation.     

Updating the Determinants of Firm Performance: Estimation using the 1998 UK Workplace Employee Relations Survey

We examine the determinants of establishment performance in the UK, using cross‐sectional data from the 1998 Workplace Employee Relations Survey to replicate research by Fernie and Metcalf (1995) who used data from the 1990 Workplace Employee Relations Survey; specifically, we test whether employee representation, contingent pay and efforts to boost employee participation affect a set of economic and industrial relations outcome indicators in the manner they suggest. We also re‐estimate the influential WERS90‐based study of Machin and Stewart (1996) on the links between union status and financial performance. In both cases we report very different results.     

Transforming Local Government: Innovation and Modernization

This article is based on research investigating why local authorities innovate and what happens when they do. The authors show how local authorities have responded to the current normative climate for innovation, and explore the interaction between central policy and local action. The article demonstrates the importance of the policy climate set by central government in fostering—or constraining—innovation at a local level.     

GATT,Preferential/Regional Trading Blocs and Agricultural Trade*

Agricultural trade impasses have again frustrated the GATT process. Interest in preferential/regional trading blocs is increasing. the paper probes the theoretical and empirical consequences of preferential arrangements instead of multilateral liberalization. It concludes that in a second-best world preferential arrangements could either improve or decrease global welfare. For agricultural trade, previous experience suggests that in regional groupings such as the EC trade diversion exceeded trade creation. This results from trade distorting domestic policies. Prospects for liberalization of agricultural trade under either GATT or preferential arrangements are limited. the consequences for small agricultural exporters are not positive.     

The evaluation stage in marketing decision making

Prior to making important decisions, marketing managers go through an evaluation process in which available alternatives are compared. Yet, no systematic discussion of the evaluation process exists in the marketing literature. This article reviews the marketing and behavioral decision theory literature in order to identify factors that may cause errors in the two fundamental elements of the evaluation process—the estimation of probabilities and the determination of the value of outcomes. Propositions are developed that specify circumstances in which marketing management decisions may be influenced by judgmental biases, and procedures are identified for debiasing such judgments.     

On the E-optimality of truncated block designs

Sufficient conditions are found for designs, derived from completely symmetric designs by deleting binary blocks, to be E-optimal. Sufficient conditions are also found for E-optimality of designs obtained from other E-optimal designs by deleting all blocks forming a balanced incomplete block design on a subset of the treatments. The results include many binary and non-binary designs for which E-optimality was previously unknown.     

Uncovering the Risk–Return Relation in the Stock Market

There is ongoing debate about the apparent weak or negative relation between risk (conditional variance) and expected returns in the aggregate stock market. We develop and estimate an empirical model based on the intertemporal capital asset pricing model (ICAPM) that separately identifies the two components of expected returns, namely, the risk component and the component due to the desire to hedge changes in investment opportunities. The estimated coefficient of relative risk aversion is positive, statistically significant, and reasonable in magnitude. However, expected returns are driven primarily by the hedge component. The omission of this component is partly responsible for the existing contradictory results.