Towards an understanding of profitability analysis within the residual income valuation framework

This paper argues that there is a mis-match between formal theoretical accounting valuation models, and practical approaches to profitability analysis and valuation. In particular, none of the linear information models published to date exhibit an obvious role for profitability analysis. For example, in the standard Ohlson model, earnings and book value apparently summarise all the value relevant information available from the firm's financial statements and there is no apparent need for any further investigation of the accounting numbers beyond these specific line items. The purpose of this paper is to attempt to investigate potential analytical links between formal valuation models and practical profitability analysis. Specifically, we attempt to show how key features of practical profitability analysis might be incorporated into formal valuation models. In this respect there are two particular aspects of valuation practice to which the formal models published to date have paid no attention. First, in practice we often see explicit reference made to the demand side (sales), and supply side (costs) of the business. Second, we often see attempts to benchmark the financial ratios of one firm against the corresponding ratios of firms in the same industry. The purpose of this paper is to attempt to explain why such practices make sense in the context of an attempt to model the principal determinants of firm value within a residual income valuation framework.     

Managerial Choices in the Valuation of Acquired Goodwill in the UK

During the 1980s the UK regulations affecting accounting for acquired goodwill allowed managers to make accounting choices affecting recorded goodwill that best served their particular interests. This paper develops and tests the hypothesis that the proportions of purchase price assigned to separable net assets and consequently to goodwill are affected by gearing (leverage) and other considerations.     

Another Look at Effects of “Adults-Only” Age Restrictions on Housing Prices

This study reexamines the price effects of age restrictions on housing prices. Our data cover a period when the housing market is taking a steep downturn. We argue that, when housing prices are falling, seniors are more likely to avoid investing in housing for at least two reasons. First, seniors are relatively more sensitive to their immediate equity loss than younger homeowners, mainly due to the limited remaining lifetime over which they can afford to wait; second, age-restriction acts as a luxury good, with seniors not willing to pay for reduction in neighborhood uncertainty, eliminating buyer demand for this segment of the population. If this “larger demand loss” outweighs the positive externality of the reduction in neighborhood uncertainty during the market downturn, we would observe that age-restrictions reduce property values. Using data from Broward County, Florida for the years of 2005–2007, we find a significant discount in residential condominium prices due to age-restrictions. In particular, we find that imposing age-restriction on properties decreases housing prices by 17.9% during the period May 2005 to April 2006, while the discount is worse, 22.7%, during the later period May 2006 to May 2007.     

Reel Geopolitics: Cinemato-graphing Political Space

Recent research has focused on the efforts of national leaders to legitimize and strengthen national identity through the construction of uncomplicated, linear national histories. Paralleling, and in some respects advancing, these efforts are initiatives aimed at staking national claims to particular territories. These claims are the product of 'regimes of territorial legitimation' that reflect the norms of the modern state system. They are fundamentally influenced by two geographic circumstances: the political-territorial status of states at the time of entry into the modern state system and prevailing ideas about the cultural-historical character of state territory. A comparative framework focused on the intersection of these two circumstances provides insights into some basic features of national senses of territory as articulated by those in power within existing states.     

How a rapid modal convergence into a universal automated taxi service could be the future for local passenger transport

The world is changing rapidly. Yet a common assumption is that cars, buses, and taxis will remain the dominant local passenger transport modes in the coming decades. This concept paper draws on literature sources and on discussions with industry stakeholders to look anew at the local passenger transport sector in the light of broader societal trends to suggest an alternative future, and to offer insights to practitioners and policy-makers. The paper finds that the traditional modes of car, bus and taxi are slowly beginning to lose market share to intermediate modes such as shared taxis, lift-sharing schemes, demand-responsive transport services and car clubs whilst numerous technological and market trends are combining to accelerate this process of ‘modal convergence’. Taken together, these trends could revolutionise how we move about, with one possible outcome being the emergence of a single dominant passenger mode of an automated universal taxi system or dial-a-pod.     

Forecasting with the almost ideal demand system: evidence from some alternative dynamic specifications

The almost ideal demand system is used as a representation of long run demands in discrete time and continuous time error correction models to produce forecasts of budget shares beyond the sample period. The estimated models are subjected to a battery of tests, and an analysis of the forecasts indicates that continuous time adjustment mechanisms, based around fully modified estimates of the long run preference parameters, provide a remarkably accurate method of forecasting budget shares.     

The effect of childhood measles vaccination on school enrolment in Matlab,Bangladesh

There is increasing evidence that early childhood health interventions have long-term effects on cognitive development, educational achievement and adult productivity. We examine the effect of measles vaccination on the school enrolment of children in Matlab, Bangladesh. An intensive measles vaccination programme was introduced in one area in 1982, and extended to another in 1985, while a third area acted as a control. Using this staggered roll-out as an instrument, we find that age-appropriate vaccination raises the probability that a boy has enrolled in school by 7.4 percentage points but appears to have no effect on girls’ enrolment.     

How far can we trust earnings numbers? What research tells us about earnings management

The article reviews the recent academic research literature on earnings management (EM) with a view to identifying research themes and results of interest to users and preparers of financial statements, accounting standard setters, and others with responsibility for ensuring that companies provide financial information to shareholders that can be relied upon. Hopefully students of accounting with an interest in exploring the EM literature will find that the article provides a useful framework. The literature on this topic is vast, and it is not possible to cover every article in detail. I provide an impressionistic survey that highlights examples of specific research themes and methods that regularly appear in the literature. Most of the examples are chosen from the literature published since 2000, although I do also highlight a few methodological contributions that appeared earlier. It is inevitable that the selection of articles reflects to some extent my personal interests and biases (intentional or otherwise). Thus, I wish to acknowledge that I owe a very substantial intellectual debt to the insights and contributions of the many uncited authors of a literature that spans over 40 years in over 20 accounting and finance journals.