the timing of industry and firm earnings information in security prices a re evaluation abstract this paper re evaluates evidence in ayers and freeman ayers f freeman r 1997 market assessment of industry and firm earnings information journal of accounting and economics 24 205 218 suggesting that investors anticipate industry wide components of earnings earlier than firm specific components and that post earnings announcement drift following annual earnings announcements is due primarily to firm specific components of earnings our tests indicate that post announcement drift is entirely attributable to coefficient bias due to measurement errors in the use of realized earnings changes as proxies for unexpected earnings also coefficient differences in the market s anticipation of subsequent year industry and firm specific earnings become insignificant when we introduce suitable controls for non linearity in the return earnings relation

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

walrasian equilibrium with gross substitutes in this paper we study the problem of efficient production and allocation of indivisible objects among a set of consumers we assume that the agents preferences depend on the bundle of objects and the quantity of money they consume furthermore we assume that preferences are quasilinear in money and that agents have a large endowment of money with indivisibilities it is well known that many familiar properties of the utility functions fail to ensure existence in their striking analysis of the matching problem kelso and crawford 5 introduce the gross substitutes gs condition which ensures the non emptiness of the core we propose two new conditions and show that with quasilinearity they are equivalent article id jeth 1999 2531 available online at http www idealibrary com on

an empirical assessment of the residual income valuation model abstract this paper provides an empirical assessment of the residual income valuation model proposed in ohlson ohlson j a 1995 earnings book values and dividends in security valuation contemporary accounting research 11 661 687 we point out that existing empirical research relying on ohlson s model is similar to past research relying explicitly on the dividend discounting model we establish that the key original empirical implications of ohlson s model stem from the information dynamics that link current information to future residual income our empirical results generally support ohlson s information dynamics however we find that our empirical implementation of ohlson s model provides only minor improvements over existing attempts to implement the dividend discounting model by capitalizing short term earnings forecasts in perpetuity

a parametrization of the auction design space abstract we present an extensive breakdown of the auction design space that captures the essential similarities and differences of many auction mechanisms in a format more descriptive and useful than simple taxonomies this parametrization serves as an organizational framework in which to classify work within the field and uncovers parameter combinations corresponding to novel mechanisms the structured characterization of auction rules can be exploited for the modular design of configurable auction servers it also facilitates the communication of auction rules to software agents enabling the automation of flexible market based negotiation journal of economic literature classification numbers c70 d44

information in prices about future earnings abstract stock return over a period reflects the market s revision in expectation of future earnings accounting earnings over the same period however have limited ability to reflect such revised expectations therefore returns anticipate earnings changes and the earnings response coefficient from a regression of returns on contemporaneous earnings changes is biased toward zero we reduce this bias by including leading period returns in price earnings regressions the resulting estimated earnings response coefficient magnitudes suggest that the capital market on average views earnings changes to be largely permanent this is consistent with the random walk time series property of annual earnings

the value relevance of intangibles the case of software capitalization the value relevance of intangibles the case of software capitalization author s david aboody and baruch lev source journal of accounting research vol 36 studies on enhancing the financial reporting model 1998 pp 161 191 published by blackwell publishing on behalf of accounting research center booth school of business university of chicago stable url http www jstor org stable 2491312 accessed 14 09 2010 16 12

bundling equilibrium in combinatorial auctions this paper analyzes ex post equilibria in the vcg combinatorial auctions if is a family of bundles of goods the organizer may restrict the bundles on which the participants submit bids and the bundles allocated to them to be in t he vcg combinatorial auctions obtained in this way are known to be truth telling mechanisms in contrast this paper deals with non restricted vcg auctions in which the buyers choose strategies that involve bidding only on bundles in and these strategies form an equilibrium we fully characterize those that induce an equilibrium in every vcg auction and we refer to the associated equilibrium as a bundling equilibrium the main motivation for studying all these equilibria and not just the domination equilibrium is that they afford a reduction of the communication complexity we analyze the tradeoff between communication complexity and economic efficiency of bundling equilibrium

equity in the finance of health care some international comparisons this paper presents the results of a ten country comparative study of health care financing systems and their progressivity characteristics it distinguishes between the tax financed systems of denmark portugal and the u k the social insurance systems of france the netherlands and spain and the predominantly private systems of switzerland and the u s it concludes that tax financed systems tend to be proportional or mildly progressive that social insurance systems are regressive and that private systems are even more regressive out of pocket payments are in most countries an especially regressive means of raising health care revenues

incentive effects in the demand for health care a bivariate panel count data estimation this paper contributes in three dimensions to the literature on health care demand first it features the first application of a bivariate random effects estimator in a count data setting to permit the efficient estimation of this type of model with panel data second it provides an innovative test of adverse selection and confirms that high risk individuals are more likely to acquire supplemental add on insurance third the estimations yield that in accordance with the theory of moral hazard we observe a much lower frequency of doctor visits among the self employed and among mothers of small children copyright 2002 john wiley sons ltd

two stage residual inclusion estimation addressing endogeneity in health econometric modeling the paper focuses on two estimation methods that have been widely used to address endogeneity in empirical research in health economics and health services research two stage predictor substitution 2sps and two stage residual inclusion 2sri 2sps is the rote extension to nonlinear models of the popular linear two stage least squares estimator the 2sri estimator is similar except that in the second stage regression the endogenous variables are not replaced by first stage predictors instead first stage residuals are included as additional regressors in a generic parametric framework we show that 2sri is consistent and 2sps is not results from a simulation study and an illustrative example also recommend against 2sps and favor 2sri our findings are important given that there are many prominent examples of the application of inconsistent 2sps in the recent literature this study can be used as a guide by future researchers in health economics who are confronted with endogeneity in their empirical work

the competitive allocation process is informationally efficient uniquely abstract this paper establishes that the competitive allocation process is the only informationally decentralized mechanism for exchange environments which i achieves pareto optimal allocations ii gives each consumer an allocation which is according to his preferences at least as good as his endowment iii satisfies certain regularity conditions and iv has a message space of the smallest dimension necessary to satisfy i iii

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

elicitation of honest preferences for the assignment of individuals to positions the problem of eliciting honest preferences from individuals who must be assigned to a set of positions is considered individuals know that they will be charged for the positions to which they are assigned a set of prices that provide no incentive for the individual to misrepresent his preferences is suggested it is shown that these prices constitute an element of the optimal solution to the dual of a linear programming assignment problem both the optimal allocation and the prices to be charged can be derived by solving two linear programming problems once preferences have been elicited the procedure can usefully be viewed as a simulation of a competitive market under conditions where such a market cannot be expected to function well it results in an efficient allocation where all resources are valued at their opportunity costs and consumer surplus is maximized its outcome thus has the desirable properties of competitive market equilibria

prescription drug expenditures in the united states the effects of obesity demographics and new pharmaceutical products author affiliation donald vandegrift professor of economics the college of new jersey 2000 pennington rd ewing nj 08628 usa vandedon tcnj eduanusua datta associate professor of economics school of business administration philadelphia university school house lane and henry avenue philadelphia pa 19144 usa dattaa philau edu corresponding author acknowledgment we wish to thank subarna samanta judith shinogle and karen conway for helpful discussions and comments julie l hotchkiss provided us with valuable suggestions for an earlier version of this article and we benefited from advice given by two anonymous referees at this journal ellie fogarty ravi kaneriya michael ferlise and leigh ann culbertson provided valuable research assistance 1 introductionduring the period 1990 1998 real per capita expenditures on prescription drugs in the u s increased by 84 1996 dollars gdp deflator beginning in 1993 the average annual percentage increase in prescription drug spending exceeded the overall percentage increase in national health expenditures by 1998 the annual percentage growth in prescription drug spending was more than 16 while overall spending on health care rose less than 6 compared to the previous year in total u s consumers spent more than 90 billion on prescription drugs in 1998 or 334 on a per capita basis centers for medicare and medicaid services 2002 not surprisingly prescription drug coverage and its associated costs have become issues in national as well as state political campaigns 1but the rising expenditures were not simply caused by higher prescription drug prices while the cpi consumer price index for prescription drugs rose by 42 nominal per capita expenditures on prescription drugs rose 120 during the period u s bureau of the census 2002 consequently higher rates of prescription drug consumption explain at least part of the story further while overall prescription drug spending has increased rapidly per capita prescription drug use in the united states varies widely by state in 1998 some states had per capita prescription drug spending of more than 400 while other states residents spent half that much while we do not wish to absolve the pharmaceutical manufacturers this data suggests that arguments placing the blame for high prescription drug costs on the prices and profits of pharmaceutical manufacturers may be missing a portion of the story the literature on prescription drugs suggests a number of causes e g new drug introductions aging of the population insurance coverage however berndt 2002 notes that a shortcoming of the existing literature is the lack of quantitative estimates of the causes for increased consumption of prescription drugs since the mid 1990s in a similar vein kane 1997 concludes that the effect of the managed care revolution has been difficult to separate out from the other forces affecting pharmaceuticals to better inform public policy we provide some quantitative estimates of the factors that have contributed to the increase in prescription drug expenditures we investigate the role of public health factors obesity smoking and alcohol consumption rates aging population 65 and over access to medical care managed care enrollments and the relative size of the uninsured population new pharmaceutical products income and unemployment on real prescription drug expenditures using panel data from all 50 u s states for the period 1990 1998 the estimates should allow better projections of the anticipated increase in prescription drug expenditures gauging the costs of smoking obesity and alcohol consumption is also important high costs associated with any of these public health problems make it easier to justify costly government programs to reduce their prevalence thus public policy responses to rising prescription drug expenditures will vary based on the source of the increase

changes versus levels in earnings as explanatory variables for returns some theoretical considerations this paper considers theoretical aspects of the specification of an earnings variable to explain contemporaneous returns the traditional approach in market based accounting research centers on changes in earnings deflated by beginning of period price as the benchmark explanatory variable for returns the reasons for using this variable appear to follow a three step argument first unexpected earnings determine the theoretically correct concept of the earnings variable second the change in earnings approximates unexpected earnings because current earnings approximate expected earnings i e the random walk hypothesis applies 1 third the beginning of period price deflates the earnings change variable to make it dimensionally consistent with returns 2 while this argument seems overly heuristic we are unaware of a generally acceptable analysis that provides a more compelling argument this lack of rigor has recently become an issue because

the wealth effects of premium subsidies on moral hazard in insurance markets abstract insurance premium subsidies are present in many insurance markets the swiss government for example paid out chf 4 26 billion or 0 72 of the swiss gdp for health insurance premium subsidies in 2011 analyses of premium subsidies have often highlighted that the increased insurance demand due to premium subsidies increases the effects of moral hazard in the market other consequences of premium subsidies however have mostly been neglected by the literature we show in our theoretical model that the wealth effects of premium subsidies decrease the sensitivity of the insured towards the monetary consequences of losses this leads to less prevention efforts by the insured and thus increases moral hazard in the market the effect is preserved if the subsidy is financed through proportional taxation using two alternative models we show that providing state dependent subsidies can either increase or reverse this effect depending on which state subsidies are paid we argue that whether demand effects or wealth effects of premium subsidies will dominate the insured s behavior depends on the market structure

a binary conflict ascending price bicap mechanism for the decentralized allocation of the right to use railroad tracks the questions posed for study are motivated by controversies over how sweden might change from a centralized system of railroad management to a decentralized system the central rail administration banverket will retain ownership and maintenance responsibility of the tracks but will sell access to the tracks to private firms the questions are about the mechanism that might accomplish this task parties to the controversy have claimed that the technical aspects of networks will as a matter of principle preclude the operation of any decentralized method this paper explores the properties of a mechanism developed as a challenge to that claim the mechanism is examined in the context of a testbed experimental environment that contains many potential problem causing elements in the tests performed the mechanism operated to efficiently allocate access to the network and it did so for behavioral reasons that are understandable in terms of theory the paper closes with suggestions for further study of environments that might present additional challenges to a mechanism

effects of price and deductibles on medical care demand estimated from survey data this paper estimates the price sensitivity of medical care demand from cross sectional survey data by relating medical consumption to approximated copayment rates resulting from deductibles instead of the deductibles itself a transformation is used that better takes into account that expected expenditures at policy level play an important role in the reaction of consumers with regard to their deductible this transformation approximates the average expected copayment rate that is the portion of expenditures that one may expect at the beginning of the year to pay out of pocket given the deductible and given the expected expenditures at policy level the principal finding is an estimated price elasticity of medical care demand of 0 079 the highest price sensitivity was found for physiotherapy visits 0 12 and general practitioner visits 0 085 and the lowest for specialist visits 0 074 and prescription drugs 0 056 hospital care demand appeared not to be affected by deductibles

permanent versus transitory components of annual earnings and estimation error in earnings response coefficients abstract previous research has generally estimated unexpected earnings as the change relative to the previous year assuming that shocks to annual earnings are purely permanent in the presence of transitory components of annual earnings we predict that using earnings changes as a proxy for unexpected earnings causes earnings response coefficients to be understated and the estimation error to be negatively cross sectionally correlated with persistence the negative correlation causes the association between earnings response coefficients and persistence to be overstated we use the ima 1 1 model to capture transitory components of annual earnings and obtain results that are consistent with our predictions

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

management by the numbers a formal approach to deriving informational and distributional properties of unmanaged earnings we explore the theoretical relation between earnings and market returns as well as the properties of earnings frequency distributions under the assumption that managers use unbiased accounting information to sequentially decide on real options their firms have and report generated earnings truthfully with the market pricing the firm based on those reported earnings we generate benchmarks against which empirically observed earnings returns relations and aggregate earnings distributions can be evaluated this parsimonious model shows a coherent set of results reported losses are less persistent than reported gains decision making diminishes the s shaped market response to earnings and earnings relate to returns asymmetrically in the way documented by basu 1997 furthermore the implied frequency distribution of aggregate earnings is neither symmetric nor necessarily single peaked instead it may exhibit a kink at zero and look similar to the plots reported by burgstahler and dichev 1997 however within our model none of these phenomena are due to reporting noise bias or some undesirable strategic managerial behavior they are the natural consequences of using past earnings as the basis for value increasing managerial decision making that in turn generates the future earnings on which future decisions will be based

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

estimating the moral hazard effect of supplemental medical insurance in the demand for prescription drugs by the elderly almost all persons over the age of 65 are insured under the medicare program for inpatient drug consumption this national insurance plan does not however generally cover the purchase of outpatient prescription drugs rx in 1992 more than onethird of all outpatient drug expenditures in the united states were incurred by medicare enrollees yet approximately 50 percent of the elderly did not have any coverage for this type of treatment daniel waldo 1994 in response to this and other gaps in medicare coverage private firms have offered insurance instruments specifically designed to fill such voids commonly known as medigap policies in addition to this form of financial protection contingent upon state of residency and economic status elderly persons may qualify and obtain coverage for rx through medicaid or a state sponsored drug program however even with these incomeand wealth sensitive options many relatively poor elderly are faced with significant outof pocket drug expenditures coverage is concentrated among those elderly with income over 200 percent of poverty and those below the poverty line stephen long 1994 the most vulnerable elderly seem to be protected from the financial hardship of excessive rx expenses through medicaid coverage but private supplemental insurance is potentially too expensive for seniors near the poverty line to alleviate this burden 11 states currently offer some form of rx insurance that is targeted at those elderly or disabled persons who are relatively poor but do not qualify for medicaid at the national level policymakers and interest groups have advocated adding coverage to the medicare program to assess such programmatic changes an accurate forecast of the potential change in rx usage is needed in this paper we use a 1990 sample of medicare enrolled pennsylvanians who may have private medigap insurance or coverage under the state s rx program to estimate the amount by which the rx demand of the average individual would change in the presence of insurance coverage ceteris paribus such a residual increase in the consumption of a medical commodity has been labeled the moralhazard effect of health insurance the estimation of this effect requires a nonstandard regression technique because insurance coverage for rx and those types of treatments that are complementary or substitutable for prescriptions may be endogenously determined those persons with a higher demand for drugs are more likely to demand supplemental insurance for rx coulson and terza department of economics pennsylvania state university university park pa 16802 neslusan division of economic research at the social security administration 4301 connecticut avenue n w washington dc 20008 stuart department of health policy and administration pennsylvania state university university park pa 16802 funding for survey design and implementation used in this research was supported by grants from the pew charitable trusts and the health care financing administration grant no 88 01439 001 the views expressed herein are not necessarily endorsed by either these agencies or the social security administration 1the now repealed medicare catastrophic coverage act of 1988 as well as many of the recent healthcare reform proposals would have provided for outpatient rx coverage for the elderly 122

accounting for changing prices the value relevance of historical cost price level and replacement cost accounting in mexico this paper investigates the value relevance of historical cost price level and replacement cost accounting using a sample of mexican firms from 1989 to 1995 it contributes to prior research by distinguishing between two distinct aspects of changing prices 1 the change in the general price level and 2 the change in the value of specific non monetary assets i select mexico to examine because it is unique in requiring and disclosing separately price level and replacement cost adjustments a sample of mexican firms also addresses a key reason cited for mixed results in previous assessments of the usefulness of price level and replacement cost accounting using united states data the effects of inflation are too weak to detect high rates of inflation in mexico ranging between 7 and 52 during the sample period mitigate that potential problem results indicate that replacement cost adjustments are relatively and incrementally relevant beyond historical cost and price level measures while price level adjustments are incrementally value relevant beyond historical measures

is comprehensive income superior to net income as a measure of firm performance abstract with the exception of financial firms we find no evidence that comprehensive income is more strongly associated with returns market value or better predicts future cash flows income than net income moreover the only component of comprehensive income that improves the association between income and returns is the marketable securities adjustment our results do not support the claim that comprehensive income is a better measure of firm performance than net income our results also raise questions about the appropriateness of items included in sfas 130 comprehensive income as well as the need for mandating uniform comprehensive income disclosures for all industries

the valuation of the foreign income of us multinational firms a growth opportunities perspective we demonstrate the value relevance of foreign earnings for us multinational firms by examining the associations between annual abnormal stock performance and changes in firms domestic and foreign incomes for 2570 tirm year observations between 1985 and 1993 both foreign and domestic earnings changes have significant positive associations with annual excess return measures however the association coefficient on foreign income is significantly larger than the association coefficient on domestic income we demonstrate this larger association coefficient for foreign income is consistent with differences in growth opportunities between domestic and foreign operations

earnings as an explanatory variable for returns in this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings returns associations the primary model motivating this research relies on the idea that book value owners equity and market value are both stock variables indicating the wealth of the firm s equity holders the related flow variables after adjusting for dividends are respectively earnings divided by price at the beginning of the return period a p 1 and market returns it then follows that earnings divided by beginning of period price should be associated with stock returns although models based on a relation between market value and book value are used occasionally in the accounting research literature see for example landsman 1986 harris and ohlson 1987 and barth

auction protocols for decentralized scheduling decentralized scheduling is the problem of allocating resources to alternative possible uses over time where competing uses are represented by autonomous agents market mechanisms use prices derived through distributing bidding protocols to determine schedules we investigate the existence of equilibrium prices for some general classes of scheduling problems the quality of equilibrium solutions and the behavior of an ascending auction mechanism and bidding protocol to remedy the potential nonexistence of price equilibria due to complementarities in preference we introduce additional markets in combinations of basic goods finally we consider direct revelation mechanisms and compare to the market based approach journal of economic literature classification numbers c62 c70 d44

allocating uncertain and unresponsive resources an experimental approach we identify an important class of economic problems that arise naturally in several applications the allocation of multiple resources when there are uncertainties in demand or supply unresponsive supplies no inventories and fixed capacities and significant demand indivisibilities rigidities examples of such problems include scheduling job shops airports or supercomputers zero inventory planning and the allocation and pricing of nasa s planned space station using experimental methods we show that the two most common organizations used to deal with this problem markets and administrative procedures can perform at very low efficiencies 60 65 efficiency in a seemingly robust example thus there is a need to design new mechanisms that more efficiently allocate resources in these environments we develop and analyze two mechanisms that arise naturally from auctions used to allocate single dimensional goods these new mechanisms involve computer assisted coordination made possible by the existence of networked computers both mechanisms significantly improve on the performance of administrative and market procedures

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

experimental design in tests of linear factor models for various reasons cross sectional tests of linear factor models have employed the returns on portfolios of assets as opposed to individual securities there is a good deal of flexibility in how one goes about choosing which portfolios to examine the experimental design this article points out that some choices can lead to collinearity among factor loadings with potentially harmful consequences for power a diagnostic procedure for detecting collinearity is discussed and several illustrations of the procedure on existing tests of linear factor models are used to illustrate their value to the researcher finally a series of experiments is carried out to validate the diagnostics and to confirm their assessment of the experimental design in the models examined

why have measures of earnings quality changed over time the properties of earnings have changed dramatically over the past 40 years prior studies interpret this trend as a decline in earnings quality but disagree on whether it results from changes in the real economy or changes in accounting standards i find that each new cohort of listed firms exhibits lower earnings quality than its predecessors mainly because of higher intangible intensity i conclude that the trend of decline in earnings quality is due more to changes in the sample of firms than to changes in generally accepted accounting principles gaap or in the earnings quality of previously listed firms

insider trading earnings changes and stock prices this study empirically examines the relation between reportable insider trading and the information captured by annual unexpected earnings for a large sample of firms spanning a ten year period 1978 87 each observation is assigned to one of four groups based on the direction of net insider trading buy sell and the sign of unexpected earnings for each of these groups 15 month cumulative abnormal returns are regressed on annual unexpected earnings the slope coefficient is the largest for the group where insiders are net purchasers and the sign of unexpected earnings is positive this is consistent with an inference that insider buying interactively confirms the favorable information captured by positive unexpected earnings and this interaction reduces the noise in unexpected earnings the result with regard to the unfavorable information captured by the group with insider selling and negative unexpected earnings is similar but less pronounced the analysis also suggests that insider trading conveys information not fully captured by the year s earnings

the value relevance of german accounting measures an empirical analysis in this study we compare the value relevance of accounting measures for u s and german firms matched on industry and firm size and evaluate the incremental informativeness of earnings adjusted on the basis of a formula proposed by analysts german companies have been at the center of a controversy between the new york stock exchange nyse and the securities and exchange commission sec the controversy arises from the sec s insistence that to list on a u s stock exchange non u s companies must reconcile earnings and shareholders equity to u s generally accepted accounting practice u s gaap fuerbringer 1992 and jarrell 1992 41 the nyse s concern has been that

competitive equilibrium in an exchange economy with indivisibilities abstract we analyze an exchange economy in which i all commodities except money are indivisible ii agents preferences can be described by a reservation value for each bundle of indivisible objects and iii all agents are price takers we obtain a necessary and sufficient condition under which market clearing prices exist implications for market mechanisms are discussed journal of economic literatureclassification numbers d51 c78

dividend taxation in firm valuation new evidence in this paper we develop a residual income model showing how taxes on dividends affect the relative valuation of retained earnings versus contributed equity as well as the value of expected future earnings tests of predictions from our model for a sample of compustat firms from 197594 suggest that overall firm value and the relative valuation weights investors assign to retained earnings contributed equity and current earnings all critically depend on dividend taxes the findings also suggest that investors take a proprietary perspective in valuation and impute an unrecorded shareholder level tax liability on retained earnings the u s tax system subjects retained earnings to dividend taxes upon distribution to shareholders while contributed equity is returned to shareholders as a nontaxable return of capital from the shareholder s proprietary perspective therefore retained earnings should be valued on

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

the association between stock returns and foreign gaap earnings versus earnings adjusted to u s gaap abstract this study examines the association between stock returns and foreign gaap earnings versus earnings adjusted to u s gaap using a sample of foreign firms with common stock or american depositary receipt adr traded in u s exchanges we compare the returns earnings relations between u s and foreign gaap based earnings results based on the ja test indicate that earnings based on foreign gaap are more closely associated with contemporaneous stock returns than earnings reconciled to u s gaap we find evidence that our results may be driven by institutional factors which are specific to foreign markets

determinants of out of pocket pharmaceutical expenditure and access to drugs in catalonia this article examines the determinants of the demand for pharmaceuticals in catalonia using the latest available official survey data having accounted for the individual differences in cost sharing among consumers as well as the influence of self medication the article builds a model of the household determinants of pharmaceutical expenditure and consumption the econometric application deals with the infrequency of purchases and the nondistinction between out of pocket spending and drug cost sharing our results suggest that income and the variables accounting for the effect of cost sharing were significantly associated with drug use but not drug expenditure furthermore gender health status and having health insurance appear to be significant predictors access to pharmacies increases both drug use and expenditure self medication also increases drug expenditure out of pocket these results are relevant for the entire spanish case where current reform proposals have recommended the introduction o

pharmaceuticals in u s health care determinants of quantity and price the u s pharmaceutical industry has again become the focus of considerable controversy in understanding the economics underlying this industry distinctions between short medium and long run costs are critical as is that between economic and accounting costs consumers heterogeneous valuations create strong incentives for non uniform pricing and targeted marketing the conflict between static efficiency price new drugs low near short run marginal cost and dynamic efficiency price new drugs high maintain incentives for innovation is deep and enduring this trade off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply

multi item auctions a collection of items is to be distributed among several bidders and each bidder is to receive at most one item assuming that the bidders place some monetary value on each of the items it has been shown that there is a unique vector of equilibrium prices that is optimal in a suitable sense for the bidders in this paper we describe two dynamic auction mechanisms one achieves this equilibrium and the other approximates it to any desired degree of accuracy

does eva beat earnings evidence on associations with stock returns and firm values this study tests assertions that economic value added eva is more highly associated with stock returns and firm values than accrual earnings and evaluates which components of eva if any contribute to these associations relative information content tests reveal earnings to be more highly associated with returns and firm values than eva residual income or cash flow from operations incremental tests suggest that eva components add only marginally to information content beyond earnings considered together these results do not support claims that eva dominates earnings in relative information content and suggest rather that earnings generally outperforms eva

health care insurance and the contract choice effect i introduction it is well known that consumers anticipate some aspects of their medical care consumption examples include obstetrical services dental procedures vision care outpatient mental health services and minor elective surgery so that medical care demand anticipation influences the choice of health insurance coverage in turn the characteristics of the chosen plan set the degree of cost sharing and therefore the net price that the consumer faces which is given by the percentage of cost sharing times the gross price of medical care this net price influences the consumer s actual demand for the broad range of medical services 1 in this way insurance choice is influenced by particular anticipated utilization and actual general utilization is influenced by the selected insurance plan health insurance choice and medical service demand are interdependent although this interdependence has been noted in the literature few researchers have attempted to model it 2 and none have explicated its implications for consumer demand behavior and the ensuing econometric analysis of medical care demand we do so in this article using an intertemporal model that highlights the role of expectations in the insurance choice medical care demand interaction under uncertainty we show that the medical care demand response to a change in its gross price consists of two separate components the standard neoclassical demand effect and an insurance contract choice effect when the gross price of medical care changes the net price to the consumer is altered for a fixed degree of cost sharing however a change in the gross price can prompt a change in the intended choice of health plan causing a change in the degree of cost sharing for example if the gross price of medical care rises our consumer may choose to pay a higher premium for an insurance policy that is more generous one that has a lower cost sharing percentage in this case the net price which first increased exogenously would now decrease endogenously the health insurance contract choice effect can play an important role in determining the consumer s observable demand response to a change in the gross price of medical care the standard medical care demand curve could be less responsive because of it and econometric studies of the price elasticity of medical care that ignore it which is typically the case in the literature would produce estimates that are erroneous furthermore although somewhat remote the contract choice effect opens the door to a perverse outcome a medical care demand curve that is upward sloping this could occur when the contract choice effect is very strong ii the model we consider an individual consumer who faces a single period two stage planning problem in the first stage the consumer makes an ex ante choice of insurance plan at the time this choice is made he knows his income for the period all prices including the gross price of medical care and his current health status however he is uncertain about his future health status in the second stage during which health status uncertainty is resolved the consumer makes ex post decisions about purchases of medical care and other goods in the first stage the consumer chooses from a variety of health insurance policies with varying characteristics the simplest has a deductible of some amount e g 250 per person 750 per family a percentage cost share e g consumer pays 20 the insurance provider 80 of each episode and a cap on total dollar outlay beyond which the insurer pays 100 of remaining expenses other policies place more emphasis on co payments e g consumer pays 20 to a physician for an office visit the insurance provider pays the balance of the negotiated cost and some policies combine all of these elements co pays for office visits 20 80 cost shares for hospital stays different mixes of percentage cost shares depending on services that are out of network in network but not preferred provider and so on

pitfalls in cross section studies with integrated regressors a survey and new developments in cross section studies if the dependent variable is i 0 but the regressor is i 1 the true slope must be zero in the resulting unbalanced regression a spuriously significant relationship ma

on auction protocols for decentralized scheduling abstract this note shows that for the combinatorial market goods defined by wellman et al 2001 there may not exist an optimal allocation that is in equilibrium moreover this result holds even if the value of each processed job is independent of its completion time the proposed algorithm for finding an equilibrium allocation using an assignment model fails due to complementarity even for instances that admit an optimal allocation which is in equilibrium

capital market effects of u s canada gaap differences canadian firms that list securities on u s stock exchanges are generally required to provide a reconciliation of reported income measured using canadian generally accepted accounting principles gaap to reported earnings measured using u s gaap this paper examines both the magnitudes and the information content of the reported reconciliations between canadiangaap income and u s gaap income two recent studies of cross country gaap differences do not address u s canada differences because of perceived similarities between gaap in the two countries amir harris and venuti 1993 and mcqueen 1993 if u s canada gaap differences are in fact unimportant then no further examination is warranted professional bodies however are

relative valuation roles of equity book value and net income as a function of financial health abstract this study tests predictions that pricing multiples on and incremental explanatory power of equity book value net income increase decrease as financial health decreases tests using a sample of 396 bankrupt firms and tests using a larger pooled sample both yield inferences consistent with predictions findings are robust to inclusion of controls for industry size return on equity and volatility of equity returns equity book value and net income multiples and incremental explanatory power vary predictably across three illustrative industries selected based on the likely extent of unrecognized intangible assets

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

initial evidence on the role of accounting earnings in the bond market we document that 1 the incidence of bond trade increases during the days surrounding earnings announcements 2 there is a bond price reaction to the announcement of earnings and 3 there is a positive association between annual bond returns and both annual changes in earnings and annual analysts forecast errors all of these effects are larger when earnings convey bad news or when the underlying bond is more risky taken together our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market

accounting for the impairment of long lived assets evidence from the petroleum industry abstract we investigate write downs of assets of oil and gas firms due to the application of the sec full cost ceiling test during the period of the largest decline in oil and gas prices since this test was mandated the correlation between the write down amounts and contemporaneous returns is statistically significant but it is lower than the correlation with lagged returns this and other evidence suggests that although the market perceived that some of the decline in asset value occurred in the quarter in which the write down was recorded much of the share market price adjustment due to this decline occurred earlier

a smart market for industrial procurement with capacity constraints we address the problem of designing multi item procurement auctions for a monopsonistic buyer in capacity constrained environments using insights from classical auction theory we construct an optimization based auction mechanism smart market relying on the dynamic resolution of a linear program minimizing the buyer s cost under the suppliers capacity constraints suppliers can modify their offers in response to the optimal allocation corresponding to each set of bids giving rise to a dynamic competitive bidding process to assist suppliers we also develop a bidding suggestion device based on a myopic best response mbr calculation that solves an associated optimization problem assuming linear costs for the suppliers we study within a game theoretic framework the sequence of bids arising in this smart market under a weak behavioral assumption and some symmetry requirements an explicit upper bound for the winning bids is established we then formulate a complete behavioral model and solution methodology based on the mbr rationale and show that the bounds derived earlier continue to hold we analytically derive some structural and convergence properties of the mbr dynamics in the simplest nontrivial market environment which suggests further possible design improvements and investigate bidding dynamics and incentive compatibility issues via numerical simulations