The q-Theory Approach to Understanding the Accrual Anomaly

Interpreting accruals as working capital investment, we hypothesize based on  q -theory that firms optimally adjust their accruals in response to discount rate changes. A higher discount rate means less profitable investments and lower accruals, and a lower discount rate means more profitable investments and higher accruals. Our evidence supports this optimal investment hypothesis: (1) adding an investment factor into standard factor regressions substantially reduces the magnitude of the accrual anomaly, often to insignificant levels; (2) accruals covary negatively with discount rate estimates from the dividend discounting model, and for the most part, with estimates from the residual income model; (3) accruals with low accounting reliability covary more with capital investment than accruals with high accounting reliability; and (iv) expected returns to accruals-based trading strategies are time-varying, suggesting that the deterioration of the accrual effect in recent years might be temporary and likely to mean-revert in the near future.     

DEMAND RESPONSE TO COST SHARING UNDER MANAGED HEALTH CARE

We use 1996 Medical Expenditure Panel Survey to examine the demand response of ambulatory medical services to demand-side cost sharing under managed health care and find that demand response to a coinsurance rate is less than that under conventional plans. To address the selection problem, only respondents who were offered a single insurance plan from private establishments are studied. Our results show that managed care, relying on different approaches to ration, has blunted demand response. This suggests that in a managed care context, increasing demand-side cost sharing will reduce costs to plans mainly by shifting costs to enrollees. ( JEL I11)     

A Note on Unsuccessful Tender Offers and Stockholder Returns

Recent research shows that unsuccessful tender offers may affect target share returns for two years past the offer's announcement. This note examines target returns in the interim between the announcement and one year after the offer's withdrawal. Analyzing a recent sample of targets that did not get another bid in the year following a failed tender offer, this study reaches two conclusions. First, all of an offer's premium disappears by the time failure becomes public. Second, excess returns are zero in the post-failure year. An explanation that is based on the causes of the tender offers' failures is presented.     

Uban Tolled Roads and the Value of Travel Time Savings*

The recent interest in the privatization of major urban roads has opened up the debate on the tolling of such facilities. Central to the identification of optimal tolls is a knowledge of the amount of money individuals are willing to outlay to save travel time. This paper combines a utility maximization framework with stated response data to determine values of time savings in the presence of varying levels of toll for the full set of urban journey purposes. The empirical results provide a basis for establishing one benchmark for toll setting, in the context of substantial lengths of urban roads. There are no tolled urban roads in any major urban area throughout the world     

CHINA'S RESISTANCE TO ECONOMIC REFORMS

After 10 years of institutional and structural change, expanded economic activity, and subsequent economic difficulties, China adopted an austerity program in 1988. Underlying the ostensible economic reasons for the austerity program, however, was growing political resistance to economic reforms among Communist party members.
This paper puts forth two explanations. One is that the leadership misunderstands the market system, and this leads to errors in economic policy. The second explanation is that rent seeking by strategically situated groups is responsible for much of the resistance.
Because market-oriented reform makes redundant both bureaucrats and job slots for apparatchik appointments, strong resistance to reform exists at the micro level.
Two scenarios could lead to real economic reform: (i) gradual self-limitation by the Communist party as economic decline continues and as the costs of maintaining the existing system increase, or (ii) a breakdown of consensus within the ruling stratum. In this paper, the dual thesis for resistance to reform serves to reinforce the latter scenario.     

Truth in Investing: The Need for Legislation

This paper shows that a wide variety of techniques are used to calculate yields on consumer investment instruments. No regulation comparable to the Federal Reserve System's Truth in Lending statute (Regulation Z) exists to standardize yields on consumer investments, and thus the consumer is not given the information necessary to make proper comparisons among alternative investments. The paper reviews yield calculation methods and reinvestment assumptions; it also examines the potentially deceptive use of Treasury bill yields as the ceiling for bank and thrift accounts. In order to reduce confusion and standardize reported yields, it is proposed that disclosure be required of both the simple yield and the annualized effective yield, assuming reinvestment at the initial rate of return.