generational accounting a meaningful way to evaluate fiscal policy this paper illustrates the technique of generational accounting a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting the authors illustrate why there is no correct measure of the deficit and how generational accounting estimating the fiscal burdens current policy places on different generations provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit their calculations suggest that despite recent changes u s fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive

a cointegrated structural var model of the canadian economy this paper implements a cointegrated structural var model of the canadian economy using quarterly data over the period 1964 1994 the dynamic properties of the estimated model are compared to the predictions of a simple textbook macro model four long run equilibrium relationships are tested i consumption income ii consumption wealth iii money demand and iv the fisher equation the empirical results obtained are generally consistent with the predictions of the textbook model s long run implications although level shifts are observed in the consumption income and the wealth income ratios similarly it is found that there was an increase in the ex post real interest rate implying a level shift in the fisher relation following the bank of canada s policy change towards a stable price level target

job matching and on the job training conventional analysis predicts that workers pay part of their on the job training costs by accepting a lower starting wage and subsequently realize a return to this investment in the form of greater wage growth missing from the conventional treatment of on the job training is a discussion of the process by which heterogeneous workers are matched to jobs requiring varying amounts of training this matching process constitutes a key feature of the on the job training model presented in this article and tested with a unique data set containing extensive information concerning on the job training employer search wages and wage and productivity growth

failure of stock prices to discipline managers in a rational expectations economy in this paper we show that even a strongly efficient stock market is by itself insufficient to discipline managers who may hold incorrect beliefs about investors behavior and their decision rules instead of disciplining the managers the stock market may generate prices that reinforce these incorrect beliefs when this happens the disciplining of managers must be accomplished through other mechanisms such as through markets for managerial labor mergers and takeovers the financial press and education these alternative mechanisms may produce slower disciplinary reactions than the stock market several important classes of accounting phenomena seem consistent with a failure of the stock market to discipline managers promptly we present in detail how the apparent failure of managers to make cashflow maximizing lifo fifo choices in a timely fashion is consistent with this theory our approach is also applicable to other financial reporting conundrums in which adverse managerial and stock market reactions were predicted in response to financial accounting standard no 2 accounting for research and development outlays standard no

dynamic analysis of inventory accounting choice this study presents a dynamic model of inventory accounting choice and thereby permits a systematic consideration of that choice over time i also restrict the dynamic model sufficiently to generate a static crosssectional model similar to those used in previous studies e g lee and hsieh 1985 and caster and simon 1986 estimation of the dynamic model identifies correlates of the change in inventory methods empirical estimates of the cross sectional model extend previous research on firm characteristics related to the use of different inventory accounting methods consistent with theories of optimal inventory accounting choice i find that factor prices play an important role in the accounting choice size change in gross national product and to a small extent industry membership also play a role in the transition assuming that managers act to maximize firm values i develop an econometric threshold model in which a dichotomous inventory method choice is determined by an underlying continuous variable a change occurs when the continuous variable crosses a threshold the model is simplified by assuming that changes of accounting state follow a first

the market s response to the 1974 lifo adoptions in this paper i report the results of a study of stock price reactions to lifo adoptions in 1974 and 1975 these two years were characterized by high levels of inflation and wide swings in stock prices and more than 400 firms on the new york and american stock exchanges switched to lifo previous studies see below provide conflicting results of the market s reaction to lifo adoptions these studies exhibit certain research design and small sample limitations which prevent one from resolving the issue of how the market reacts to lifo switches using a better matched pair design and a larger sample i conclude that lifo adopters suffered negative abnormal return performance during the period surrounding their annual earnings announcements while several possible explanations for this result are discussed additional research is needed to provide further insight into the nature of the market reaction to lifo adoption

canadian consumption and portfolio shares in this paper we gauge consumption and portfolio shares rather than the traditional pricing implications we study both aggregated financial tangible and human and disaggregated deposits stocks insurance and pensions assets the empirical shares are computed from recent aggregate canadian data the theoretical shares are constructed from a flexible specification of both investors preferences and investment opportunities our results reveal that the theoretical shares statistically match observed consumption and aggregated assets but not disaggregated assets also our findings for corporate stocks are consistent with the empirical asset returns literature finally our findings for other assets highlight several new striking features jel classification g11 consommation et parts de porte feuille au canada cette recherche analyse la consommation et les parts de portefeuille plutot que les prix des actifs nous etudions les actifs agreges i e financiers tangibles et humains ainsi que desagreges i e depots actions et caisses de retraite et assurance les parts empiriques sont calculees pour des donnees agregees canadiennes recentes les parts theoriques sont construites a partir d un modele flexible en ce qui a trait aux preferences et aux possibilites d investissement nos resultats demontrent que les parts theoriques reproduisent la consommation et les parts agregees mais pas les parts desagregees aussi nos resultats sont coherents avec ceux de la litterature empirique sur les rendements nos resultats concernant les autres actifs identifient d autres aspects caracteristiques

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

firm size effects and the association between excess returns and lifo tax savings biddle and lindahl 1982 henceforth b l used cross sectional regressions to analyze the market reaction for 311 nyse firms that adopted lifo in the period 1973 80 fifteen month excess returns were regressed on an unexpected earnings variable and a measure of the tax savings from lifo adoption the coefficient on the tax savings variable was positive and highly significant leading to the conclusion that the market reacted positively to the cash flow implications of lifo adoption this paper reexamines the b l analysis by enlarging the sample and addressing several methodological concerns the results which suggest b l s findings are attributable to the confounding effects of firm size are consistent with any of three views 1 the lack of a positive market reaction to lifo adoption 2 the inadequacy of adoption year tax savings as a proxy for the net benefit of lifo adoption or 3 the confounding of the market reaction to lifo adoption with the reaction to other events because returns are cumulated over such a long time period section 2 describes the data collection procedures section 3 presents the results and section 4 offers some conclusions

a conceptual framework for the stock price effects of lifo tax benefits this paper presents a conceptual evaluation of the stock price effects of lifo tax savings in periods of inflation adopting lifo can create cash flow benefits by deferring tax payments whether lifo tax savings are valued by investors has been extensively investigated through examinations of the stock price reaction to initial announcements of lifo adoptions 1 while evidence of positive abnormal returns at announcements of lifo adoptions proportional to the projected nominal lifo tax savings would be viewed as consistent with investors recognizing the expected tax benefits of lifo overall empirical evidence available to date does not indicate that lifo adoption related abnormal returns are positively associated with the size of potential nominal lifo tax savings 2

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

aggregate wealth in canada this paper describes a comprehensive measure of aggregate private sector wealth in canada that includes both human and nonhuman wealth wealth and its components are measured at a quarterly frequency from 1963 to 1994 human wealth is computed as the expected present value of aggregate labor income net of government expenditures using a finite state markov approximation to an estimated bivariate var for the real interest rate and net income growth nonhuman wealth is constructed by consolidating the assets and liabilities of the various sectors of the economy to the extent possible assets and liabilities are measured at market value

the transfer of human capital abstract most of our productive knowledge was handed down to us by previous generations the transfer of knowledge from the old to the young is therefore a cornerstone of productivity growth we study this process in a model in which the old sell knowledge to the young old agents train the young and charge them for this service we take an information theoretic approach in which training occurs if a young agent watches an old agent perform a task equilibrium is not constrained pareto optimal the old have private information and this gives rise to an adverse selection problem some old agents manage to sell skills that the planner would prefer to extinguish so as to allow more young agents to start new technologies in this sense there is too much resistance to change

resolving lifo uncertainty a theoretical and empirical reexamination of 1974 75 lifo adoptions and nonadoptions this study reexamines the lifo adoption decision by focusing on what can be inferred about the sophistication of managers and investors decision making through analyzing the effect on stock prices of the resolution of publicly disclosed uncertainty about the lifo adoption nonadoption decision i establish and test implications of three models of the lifo adoption nonadoption decision the traditional tax benefit model an extension of kang s 1988 real value model and a functional fixation model each model yields distinct predictions about the mean excess stock return when uncertainty about the lifo adoption nonadoption decision is resolved and about the cross sectional relations between individual excess stock returns and several explanatory

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

new evidence on lifo adoptions the effects of more precise event dates results of recent research support conclusions of an increase a decrease or no change in share values for firms switching to lifo biddle and lindahl 1982 ricks 1982 and brown 1980 this study supports the view that on average firms which adopt lifo experience an increase in share values tests are based on more nearly accurate dates when the change to lifo was announced the results suggest that a search for voluntary accounting change disclosure dates can be productive if some previously unexploited sources are examined a cross sectional regression similar to the approach taken by for example biddle and lindahl 1982 is used to explain cumulative residual stock returns at announcements of the change in accounting method variables representing quarterly unexpected earnings annual unexpected earnings systematic risk and firm size are used to control for extraneous effects the independent variable of interest is tax savings

1974 lifo excess stock return and analyst forecast error anomalies revisited in this paper i reexamine three lifo anomalies reported by ricks 1982 and biddle and ricks 1988 with the aim of investigating the degree of analyst and investor sophistication in responding to fiscal 1974 lifo adoptions biddle and ricks henceforth br s first anomaly is that their sample of 1974 lifo adopters realized a reliably negative mean excess stock return at their annual earnings announcement br view this as anomalous because 1974 lifo adopters switched voluntarily and almost always obtained substantial tax savings second br find even firms who publicly disclosed lifo adoptions in advance of their annual earnings announcements earned negative returns at the annual earnings announcement date taken at face value this result implies an opportunity

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

bond rating agencies and stock analysts who knows what when both bond rating agencies and stock analysts evaluate publicly traded companies and com municate their opinions to investors comparing the timeliness of each we find that granger causality flows both ways while most bond downgrades are preceded by declines in actual and forecast earnings both actual earnings and forecasts of future earnings tend to fall following downgrades although part of this post downgrade forecast revision can be attributed to negative news regarding actual earnings most appears to be reaction to the downgrade itself we find little change in actual earnings following upgrades analysts however tend to increase their forecasts of future earnings

stock price effects of the allowance of lifo for tax purposes abstract i investigate stock price behavior associated with the allowance of lifo for tax purposes the analysis is structured as an event study of the revenue acts of 1938 and 1939 the results indicate a positive net market reaction to legislative events leading to lifo s incorporation into the us tax code for the sample firms having the largest estimated lifo tax benefits i conclude the market revised its probabilities that firms most likely to benefit would avail themselves of the opportunity to use lifo and defer taxes on inventory profits

cost and income based measures of human capital human capital is increasingly believed to play an important role in the growth process however adequately measuring its stock remains controversial in this paper three general approaches to measurement are identified cost based income based and educational stock based this survey focuses on the first two approaches and provides a critical review of the theories and their applications to data from a range of countries particular emphasis is placed upon the work of jorgenson and fraumeni 1989 1992 and some new results for new zealand based upon their approach are also presented