Costs and benefits of a modest proposal

The principles of Social Cost-Benefit Analysis (SCBA) are used to evaluate Jonathan Swift's Modest Proposal. This was a suggestion for solving the problems of poverty and unemployment in eighteenth-century Ireland by selling the ‘surplus’ babies of the poor to supply the tables of the rich. On the evidence supplied by Swift and on fairly conservative assumptions, the project would appear to have a very high rate of return. This conclusion is, however, very sensitive to the relevant rates of interest and costs of construction. Some possible criticisms—in particular of the method of valuing human life — are rebutted.     

FURTHER EVIDENCE ON EMPIRICAL RELATIONSHIPS BETWEEN EARNINGS AND CASH FLOWS

Recently in Australia, regulations have been proclaimed requiring companies to make cashflow disclosures in addition to earnings disclosures from 30 June 1992. This paper provides evidence on relationships between earnings and cash flow measures and in so doing examines the external validity of a U.S.A. study of these relationships by Bowen, Burgstahler and Daley [1986]. We also extend their study through an industry analysis of the relationships. Evidence is presented first that shows low correlations between traditional cash flow measures (i.e., net income plus depreciation and amortisation; and working capital from operations) and a more refined cash flow measure (with additional adjustments for changes in non-cash current assets and current liabilities). Second, traditional cash flow measures exhibit high correlations with earnings, while the more refined cash flow measure has a lower correlation with earnings. Finally, traditional cash flow measures better predict future cash flows than models based on earnings or a more refined cash flow measure. The industry evidence, albeit on small sample sizes, shows that the results on the first two issues, but not the latter issue, are generalisable across industry categories.     

The Impact of the Disclosure of Non‐GAAP Earnings in Australian Annual Reports on Non‐Sophisticated Users

The disclosure of non‐GAAP earnings in Australian annual reports has risen steadily in recent years. These non‐statutory earnings measures are generally disclosed in the unaudited section of the annual report and are not consistent with statutory profit as defined under generally accepted Australian accounting standards (GAAP). Recent research conducted in the United States (US) has provided evidence that non‐sophisticated investor decisions are influenced by the presence and prominence of non‐GAAP earnings information. Further evidence suggests that investor perception changed after non‐GAAP earnings disclosures became subject to regulation in that jurisdiction. Australia has high investor participation rates by international standards, including investors operating self‐managed superannuation funds, resulting in a significant number of active individual investors. This study employs an experimental design to investigate the impact on non‐sophisticated investors of the reporting of non‐GAAP earnings information in addition to GAAP earnings information in Australian annual reports. The results of this study show a positive association between the prominent disclosure of non‐GAAP earnings information and non‐sophisticated investor reliance on this information. These results provide important evidence to Australian regulators as these narrative disclosures are not subject to regulation, in contrast to the US where mandatory regulation has been in place since 2003.