stock price reactions as surrogates for the net cash flow effects of corporate policy decisions abstract this paper adopts a rational market structure to examine the link between the cash flow effects of management policy decisions and the resulting stock price reactions the focus is on testing cross sectional associations between cash flow effects and the underlying characteristics of affected firms we find that it is not possible to infer the sign of association between the stock price reaction and any characteristics of the firm that are observable before management announces its decision our methodological suggestions involve exploiting either a priori assumptions or sample information about the probability distribution of unobservable decision variables underlying the management decision process

evidence on the choice of inventory accounting methods lifo versus fifo in this paper we describe various systematic properties of lifo and fifo firms accounting numbers included are assessments of these properties for firms reported annual numbers and for their as if counterparts obtained by estimating what lifo fifo firms would have reported had they used the fifo lifo inventory method instead our purpose in conducting these assessments is to provide additional evidence on tax and nontax explanations of firms choices of inventory accounting methods in the next subsection we elaborate on these two classes and suggest that the nontax explanations may have attracted adherents partly because existing empirical evidence is not entirely consistent with the tax explanation of lifo fifo choices of inventory accounting methods although data limitations prevent us from performing direct tests of these alternative explanations our empirical results

the role of application assistance and information in college decisions results from the h r block fafsa experiment growing concerns about low awareness and take up rates for government support programs like college financial aid have spurred calls to simplify the application process and enhance visibility we present results from a randomized field experiment in which low income individuals receiving tax preparation help were also offered immediate assistance and a streamlined process to complete the free application for federal student aid fafsa for themselves or their children treated participants were also provided with aid estimates that were compared against tuition cost amounts for nearby colleges the combined assistance and information treatment substantially increased fafsa submissions and ultimately the likelihood of college attendance persistence and aid receipt in particular high school seniors whose parents received the treatment were 8 percentage points more likely to have completed two years of college going from 28 to 36 during the first three years following the experiment families who received aid information but no assistance with the fafsa did not experience improved outcomes the findings suggest many other opportunities for using personal assistance to increase participation in programs that require filling out forms to become eligible jel codes i2 h4 j24 copyright 2012 oxford university press

the perceived returns to education and the demand for schooling economists emphasize the link between market returns to education and investments in schooling though many studies estimate these returns with earnings data it is the perceived returns that affect schooling decisions and these perceptions may be inaccurate using survey data for eighth grade boys in the dominican republic we find that the perceived returns to secondary school are extremely low despite high measured returns students at randomly selected schools given information on the higher measured returns completed on average 0 20 0 35 more years of school over the next four years than those who were not

stock price reactions to lifo adoptions the association between excess returns and lifo tax savings although long a topic of accounting research little is known about the motives for or effects of voluntary changes in accounting techniques among the motives which have been suggested are attempts by managers to smooth reported earnings gordon 1964 copeland 1968 cushing 1969 white 1972 and ronen and sadan 1981 to influence man agement compensation to reduce regulatory or political costs watts and zimmerman 1978 and to avoid bond covenant restrictions holthausen 1981 while some of these motives may be consistent with a market value rule they often fail to provide unambiguous accounting change predictions e g which accounting changes result in lower regulatory costs moreover empirical verification has been constrained by the unobservability of the variables to which the managers allegedly respond the stock price reaction which should be expected for a given account ing change depends not only on its implications for the valuation of securities but also on the extent to which the implications are already known or anticipated by investors 3 ultimately our ability to detect these stock price effects if any depends on the power of our tests previous studies of the effects of accounting changes have generally not found significant stock price reactions archibald 1972 ball 1972 kaplan and roll 1972 harrison 1977 and holthausen 1981 4 for the most part these studies dealt with accounting changes which had no direct cash flow effects in contrast changes in inventory costing methods especially those involving the last in first out lifo cost flow assumption can generate potentially large changes in a firm s cash flows due to their impact on taxable earnings these cash flow effects provide not only a motive for lifo changes5 which is consistent with the market value rule but also implications for associated stock price effects if investors react to lifo s cash flow implications rather than to its effects on reported earnings then positive stock price adjustments should be associated with lifo adjustments however the evidence from previous studies of stock price reactions to lifo adoptions is inconclusive ball 1972 sunder 1973 1975 abdel khalik and mckeown 1978 brown 1980 and ricks 1982 while several factors may account for these results see section 2 it can be noted that the previous studies have considered only a dichotomous variable whether or not a firm has adopted lifo yet because the cash flow consequences of a lifo adoption decision depend on a number of firm specific factors this approach ignores potentially large differences among firms in the economic consequences of lifo adoptions most firms switching to lifo now reveal in their financial statement disclosures the tax savings which have been realized this study uses these disclosures to examine the association between unsystematic re turns and the magnitudes of first year lifo tax savings for all nyse firms which adopted or extended their use of lifo during the period 1972 80 subject to data availability 6 the research design employs within group comparisons based on cumulative monthly unsystematic excess returns with appropriate controls for unexpected earnings per formance 7 this design avoids several methodological weaknesses inherent in the previous studies and allows more definitive tests of hypotheses relating investor reactions to the income and cash flow effects of lifo adoptions as reported more fully below results based on lifo adoptions made in 1974 are consistent with a positive association between cumulative excess stock returns and the magnitudes of lifo tax savings 8 the results also provide evidence that changes in systematic risk may accompany lifo adoptions however contrary to previous studies most of the sample firms exhibit downward rather than upward changes in systematic risk section 2 reviews the previous studies of stock price reactions to lifo adoptions and suggests explanations for their results section 3 discusses the alternative approach employed in this study while section 4 describes the test methodologies employed the data and data selection procedures are described in section 5 the results and a discussion are presented in section 6 section 7 offers some conclusions

fundamental analysis future earnings and stock prices in this paper we investigate how detailed financial statement data fundamental signals enter the decisions of market participants by examining whether current changes in the signals are informative about subsequent earnings changes our approach is consistent with the view expressed by penman 1992 and others that predicting accounting earnings as opposed to explaining security returns should be the central task of fundamental analysis studying the links between fundamental signals and future earnings changes allows us to test directly the validity of the economic intuition that underlies the original construction of the signals an alternative and less direct approach followed by lev and thiagarajan 1993 henceforth lt is based on an examination of the relations between the fundamental signals and contemporaneous returns

truthfulness in accounting how to discriminate accounting manipulators from non manipulators accountants preparing information are in a position to manipulate the view of economic reality presented in such information to interested parties these manipulations can be regarded as morally reprehensible because they are not fair to users they involve in an unjust exercise of power and they tend to weaken the authority of accounting regulators this paper develops a model for detecting earnings manipulators using financial statements ratios in a sample of spanish listed companies our results provide evidence that accounting data can be extremely useful in detecting manipulators this approach can be used by a large category of users of accounting information among which we can cite stock exchange supervisors or investing professionals

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

distributive implications of an aging society abstract the paper reviews recent research on the impact of an aging population on the distribution of income after briefly discussing the demographic conditions responsible for population aging a short account is given of demographic trends in the industrialized world in order to disentangle the many potential channels by which an aging society affects the dispersion of income several levels of aggregation are distinguished the paper differentiates between intra and intergenerational issues between direct and indirect demographic inequality effects and between the distribution of current and lifetime income it emphasizes the critical role of age related redistributive tax transfer systems like public pension schemes and health care systems sources of distributional policy conflicts are identified at both the cross section level and the lifetime level of income inequality the institutional design of intergenerational burden sharing individual disincentive reactions shifts in age income profiles related to cohort size and politico economic repercussions are shown to drive the relation between population aging and income distribution in distinct and partially opposite ways

government intervention as a bequest substitute abstract a subsequent generations model is used in order to characterize consumption allocation under the future generation s income uncertainty altruistic concerns towards future generations give rise to precautionary bequests which act as a hedge on risk it is shown that given a first order correlation between mean future income and the present generation s income government can provide a pareto improvement through a tax transfer policy with universal participation this policy acts as a substitute for precautionary bequests distributional aspects of government tax transfer policy are also discussed

research in accounting for income taxes abstract this paper comprehensively reviews the accounting for income taxes afit literature we begin by identifying four distinctive aspects of afit and briefly covering the rules surrounding afit we then review the existing studies in detail and offer suggestions for future research we emphasize the research questions that have been addressed most of which relate to whether the tax accounts are used to manage earnings and whether the tax accounts are priced by equity market participants we also highlight areas that have not received much research attention and that warrant future analysis

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

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

the value relevance of taxes international evidence on the proxy for profitability role of tax surprise abstract despite evidence that tax surprise is incrementally value relevant the literature has done little to broaden the investigation beyond the united states or examine circumstances that affect informativeness after extending to the international setting i examine the impact of tax enforcement i report strong results of greater value relevance when tax enforcement is high and that the value relevance of tax surprise is mostly contained within its interaction with tax enforcement these findings highlight the importance of tax enforcement in determining the information content of tax surprise and suggest that extant and future discussions should be broadened to include it

analyst forecast errors and stock price behavior near the earnings announcement dates of lifo adopters between june 1974 and may 1975 over 400 firms on the new york and american stock exchanges adopted the last in first out lifo inventory costing method responding to the first round of double digit inflation since wwii these firms were able to assign their newer and thus higher inventory costs to units sold thereby realizing substantial tax savings 1 however ricks 1982 found that stock returns near the earnings disclosure dates of 1974 lifo adopters were negative and significantly lower than returns near the earnings disclosure dates of firms not using lifo given that firms adopting lifo in 1974 were voluntarily switching to an accounting method providing often significant tax savings it is not obvious why investors would have reacted negatively nor is it likely that investors were unaware of many of the firms lifo adoption decisions stevenson 1987 found that at least two thirds of the firms in ricks sample had disclosed their lifo adoptions prior to their earnings disclo sure dates if investors were reacting to the effects of the lifo adoptions why did they react negatively given the increased cash flows and prior disclosures if investors were not reacting to the effects of the lifo adoptions what caused the significant negative excess returns near the earnings disclosure dates of firms adopting lifo in 1974 this study presents evidence suggesting that the negative excess re turns observed by ricks 1982 were associated with and possibly due to analysts systematic overestimates of earnings of firms adopting lifo in 1974 we are aware of no previous study documenting systematic errors in analysts earnings forecasts conditional on a voluntary account ing method change as a first step we assess the generality of ricks finding by examining excess returns near the preliminary earnings disclosure dates hereafter prelim dates of all new york nyse and american stock exchange amex firms adopting lifo between 1973 and 1980 the results confirm negative excess returns around the prelim dates of firms adopt ing lifo in 1974 there is little evidence of significant excess returns negative or positive near the prelim dates of firms adopting lifo in other years to explain the negative returns of the 1974 adopters we examine the association between excess returns and earnings forecast errors we find that standard poor s analysts systematically overestimated the earn ings of these firms analyst forecast errors are found to be significantly correlated with both the excess returns around the prelim dates and the earnings reductions due to the lifo adoptions finally we offer two possible explanations for the negative excess returns and the positive correlations between excess returns analyst earnings forecast errors and earnings effects of the 1974 lifo adoptions first the limited availability of information regarding the likely earnings effects of the 1974 lifo adoptions combined with the relative novelty of this accounting change may have led analysts and investors to underestimate the lifo earnings effects and may have made it difficult for the market to discern immediately the cause of the resulting negative forecast errors evidence consistent with this limited information hypothesis is found in the predictions of value line analysts of lifo earnings effects the actual mean earnings per share effect of the lifo adoptions 947 was 62 higher than the average value line estimate 584 however tests for the stock price reversals which would be implied by the limited information explanation are inconclusive a second possible explanation is that the magnitudes of lifo earnings effects were caused by and or provided implications regarding another factor which was important in valuing the firms yet difficult for analysts and investors to predict inflation is suggested as the likely candidate since lifo tax savings are a function of the rate at which inventory costs are increasing firms experiencing higher rates of inflation would have greater incentives to adopt lifo 4 thus the self selected sample of firms which adopted lifo in 1974 may include firms most affected by that year s surge of inflation since the extent to which inventory costs have increased is reflected in the magnitudes of the earnings effects of lifo adoptions the negative analyst forecast errors and the positive correlation between these forecast errors and the earnings effects of lifo adoptions could be explained by analyst underestimates of the rates of inflation experienced by these firms evidence consistent with this inflation hypothesis is found in the fact that managers of firms adopting lifo underestimated the impact of inflation on their own firms in addition negative excess returns and earnings overestimates are observed for a sample of established lifo users consistent with analysts and investors being surprised by the impact of inflation on these firms as well however aggregate tests based on cross industry correlations between changes in wholesale prices and lifo related variables are generally inconclusive

intended college attendance evidence from an experiment on college returns and costs abstract we conduct an information experiment about college returns and costs embedded within a representative survey of us household heads baseline perceptions of college costs and benefits are substantially biased with larger biases among lower income and non college households respondents are randomly exposed to objective information about average college returns or costs we find a significant impact of the returns experiment persisting in a follow up survey two months later intended college attendance expectations increase by about 0 2 of the standard deviation in the baseline likelihood and gaps by household income or parents education decline by 20 30 we find no impact of the cost information treatment further analysis supports the information s salience as opposed to information based updating as the main channel through which the returns intervention impacts intentions

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

fundamental information analysis fundamental analysis is aimed at determining the value of corporate securities by a careful examination of key value drivers such as earnings risk growth and competitive position in the context of such analysis we identify below a set of financial variables fundamentals claimed by analysts to be useful in security valuation and examine these claims by estimating the incremental value relevance of these variables over earnings our findings support the incremental value relevance of most of the identified fundamentals in fact for the 1980s the fundamentals add approximately 70 on average to the explanatory power of earnings with respect to excess returns we also show that the returns fundamentals relation is considerably strengthened when it is conditioned on macroeconomic variables thereby demonstrating the importance of a contextual capital market analysis for example several fundamentals that appear only weakly value relevant or even irrelevant in the unconditional analysis exhibit strong association with returns under specific economic conditions e g the accounts receivable and the provision for doubtful receivables signals during high inflation from a general examination of the role of fundamentals in security valuation we turn to the related issues of earnings persistence growth and the earnings response coefficient we hypothesize that the funda

venture capital investment cycles the impact of public markets abstract it is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets this paper examines how changes in public market signals affected venture capital investing between 1975 and 1998 we find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries the increase in investment rates does not affect the success of these transactions adversely to a significant extent these findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts

the information content of earnings and prices a simultaneous equations approach abstract the price earnings relation can be characterized as a system of simultaneous equations earnings and prices can behave as if they are both endogenously determined because they are jointly affected by information that is difficult to specify explicitly specification tests provide evidence that both earnings changes and price changes are endogenous the price and earnings coefficients increase from ols to joint estimation and under a restrictive set of assumptions provide increasingly similar estimates of the permanent component of earnings the evidence is consistent with the contention that a portion of the single equation bias can be mitigated via joint estimation

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

looking at the population problem through the prism of heterogeneity welfare and policy analyses upon introducing heterogeneity and dynamics into a model of the demand for children a problem of optimal population is defined and analyzed it is shown that from the perspective of social welfare better educated individuals produce too few children while less educated individuals produce too many children and all individuals invest too little in the education of their children the impact of several policy tools geared at addressing the population problem is investigated in particular how child allowances and other tax subsidy policies can be harnessed to enhance welfare and how and why early childhood education programs can mitigate the population problem

earnings volatility and earnings predictability abstract survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability in addition existing research suggests that earnings volatility is determined by economic and accounting factors and both of these factors reduce earnings predictability we find that the consideration of earnings volatility brings substantial improvements in the prediction of both short and long term earnings conditioning on volatility information also allows one to identify systematic errors in analyst forecasts which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability

automated earnings forecasts beat analysts or combine and conquer prior studies attribute analysts forecast superiority over time series forecasting models to their access to a large set of firm industry and macroeconomic information an information advantage which they use to update their forecasts on a daily weekly or monthly basis a timing advantage this study leverages recently developed mixed data sampling midas regression methods to synthesize a broad spectrum of high frequency data to construct forecasts of firm level earnings we compare the accuracy of these forecasts to those of analysts at short horizons of one quarter or less we find that our midas forecasts are more accurate and have forecast errors that are smaller than analysts when forecast dispersion is high and when the firm size is smaller in addition we find that combining our midas forecasts with analysts forecasts systematically outperforms analysts alone which indicates that our midas models provide information orthogonal to analysts our results provide preliminary support for th

efficiency with endogenous population growth in this paper we generalize the notion of pareto e ciency to make it applicable to environments with endogenous populations two di erent e ciency concepts are proposed p e ciency and a e ciency the two concepts di er in how they treat people that are not born we show how these concepts relate to the notion of pareto e ciency when fertility is

multifaceted aid for low income students and college outcomes evidence from north carolina we study the evolution of a campus based aid program for low income students that began with grant heavy financial aid and later added a suite of nonfinancial supports we find little to no evidence that program eligibility during the early years 2004 2006 in which students received additional institutional grant aid and few nonfinancial supports improved postsecondary progress performance or completion in contrast program eligible students in more recent cohorts 2007 2010 when the program supplemented grant heavy aid with an array of nonfinancial supports were more likely to meet credit accumulation benchmarks toward timely graduation and earned higher grade point averages than their barely ineligible counterparts jel i21 i23 i24 j08

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

real investment implications of employee stock option exercises this paper examines a real cost of awarding employee stock options based on the observation that managers are extremely concerned about earnings per share dilution in equity related compensation we predict and find that firms experiencing significant employee stock option eso exercises shift resources away from real investments towards the repurchase of their own stocks we further find weak evidence of a decline in subsequent firm performance as measured by return on assets for several years following the cut in discretionary investments as a result of stock option exercises though this result is sensitive to the metric used to measure performance collectively our findings indicate that eso exercises potentially impose a real cost on the firm in terms of foregone investment opportunities

the population problem theory and evidence this study is concerned with the relationships among population growth poverty and environmental degradation with particular focus on the situation in developing countries the author rejects the concept of a general theory of fertility behavior in favor of an interpretation of these relationships which might be applicable to certain situations in the poorest parts of the indian subcontinent and sub saharan africa such situations include unacceptable risks of maternal death for poor illiterate women and a condemnation to extreme poverty in conditions of the deterioration of local resources and of the environment the author concludes that population growth rates are too high in certain specific areas and that an appropriate policy reaction to such conditions would be to try to change the options that men and women face so that their reasoned choice would be to lower their fertility

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

the behavioral and distributional implications of aid for college subsidizing the cost of education is one of the most common and expensive activities of governments while primary and secondary schooling is available tuition free in the united states among post secondary students the direct cost of schooling is quite heterogeneous first tuition prices vary widely across schools during the 2000 2001 academic year college tuitions varied from zero at some community colleges to over 27 000 at ivy league institutions second institutions heavily discount these sticker prices for many students using detailed information on family finances and academic merit to engage in finely tuned price discrimination third the federal and state governments provide individual subsidies such as the pell grant and low interest stafford loan that are portable across institutions the standard model of human capital clearly predicts that such cost subsidies will raise the optimal level of schooling while the theoretical predictions are clear it is an empirical question how much a given dollar of subsidy affects behavior answering this empirical question is a challenge since eligibility for subsidies is certainly not random and in fact is likely to be correlated with many other determinants of schooling as a result estimates based on the cross sectional correlation of aid eligibility with schooling are subject to multiple sources of bias this paper examines work that has used quasi experimental methodology to isolate exogenous sources of variation in schooling costs in order to determine their effect on schooling decisions

endogenous fertility and the henry george theorem abstract models of endogenous demographic change deal with population size as an additional object of the welfare analysis in these models the overlapping generations olg model serves as the basic framework in club theory too population size is treated as an endogenous variable in local public goods lpg models the so called henry george theorem which requires local public expenditures to be financed by a 100 tax on aggregate land rent is known as a first order condition for club efficiency the present paper establishes and exploits an isomorphism between steady states of the olg model and allocations of the lpg model the paper revisits samuelson s fallacy concerning his goldenest golden rule and it explores institutional arrangements that sustain the optimum growth of population

internet downturn finding valuation factors in spring 2000 abstract during spring 2000 the internet stock index declined 45 using a sample of internet firms this paper investigates whether this decline was associated with new disclosures such as earnings analyst forecast revisions and web traffic measures or to a reassessment by investors of pre existing information we find only modest evidence that the decline was associated with new disclosures however returns and post decline stock prices are significantly explained by 1999 annual report data when earnings are decomposed into gross profit and various expenses traditional financial information contributes significantly more in explaining the cross sectional returns and price levels than non financial information

capital accumulation income distribution and endogenous fertility in an overlapping generations general equilibrium model abstract this paper studies the intertemporal relationships among population growth income distribution inter generational social mobility skill composition of the labor force and household income in an overlapping generations general equilibrium model that aggregates household decisions regarding fertility savings and investment in human capital of children it shows that as a consequence of endogenous fertility the equilibrium path attains steady state from the second generation income tax transfer child taxation and social security taxation policies that can be devised to affect these variables are also analyzed the model provides a structural explanation for the inverse household income child quantity and negative child quality quantity relationships that are observed in developing countries it also shows that group interests may hinder the emergence of perfect capital markets with private initiatives

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

the old age security hypothesis revisited abstract children s altruism toward parents is allowed in a two overlapping generations model with endogenous fertility parents raise children because when retired they expect gifts from their children who are essentially a capital good individuals behavior between generations is examined by analyzing a nash equilibrium which is then compared with a social planner s optimal allocation the pay as you go public pension program is viewed as the optimal gifts from the optimal allocation when the latter is implemented the effect on fertility of the introduction of a capital market is also analyzed the validity of the old age security hypothesis is shown to depend on the parameters of utility and cost functions

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

the simple analytics of contraceptive social marketing abstract contraceptive social marketing csm programs have been advocated for the dissemination of contraceptives in developing countries this paper considers csm programs from a simple economic perspective it begins with a review of the major economic models of private fertility determinants and the associated private demand for contraceptives and then adds private contraceptive supply to obtain market equilibrium next inefficiencies due to negative externalities of added children and due to imperfect information and distributional concerns are considered finally this framework is utilized to point to lacunae in our knowledge of csm programs and their impact and to suggest some promising areas for research

pay as you go public pensions with endogenous fertility abstract veall s 1986 model of public pensions is generalized to allow for endogenous fertility we show that gifts to the old which can be viewed as social security contributions are always positive in the steady state an optimal stationary allocation is sustainable if savings are zero and fertility is exogenous however the optimal allocation is in general not sustainable in particular if a government enforces a social security plan setting the pension level at the optimal gifts and individuals optimize under the pension constraint the resulting sustainable outcome is in general different from either the optimal or nash outcome

the pay as you go pension system as fertility insurance and an enforcement device a paygo system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension in fact the latter was bismarck s historic motive for introducing this system it is true that the paygo system reduces the investment in human capital but if it is run on a sufficiently small scale it may nevertheless bring about a welfare improvement if on the other hand the scale of the system is so large that parents bequeath some of their pensions to their children it is overdrawn and creates unnecessarily strong disincentives for human capital investment

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

subjective and projected returns to education abstract there is significant heterogeneity over high school students in the wage and employment rate returns to education i evaluate this heterogeneity using subjective returns derived from a data set of high school juniors and seniors in washington state variation over observables in projected returns estimated using observed data is uncorrelated with variation in subjective returns elicited by directly asking students about their beliefs these results mean that returns estimated using observed data are likely a very weak proxy for student beliefs

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

when does the bond price reaction to earnings announcements predict future stock returns abstract in this paper i show that the bond price reaction to earnings announcements has predictive power for post announcement stock returns and that this predictive ability is driven by the bonds of non investment grade firms i find that bonds predictive ability is more pronounced in firms that have a lower level of institutional shareholder ownership and whose bonds are more liquid this paper enhances our understanding of the relation between the stock and bond markets and complements the literature which documents whether and under what circumstances various accounting based measures and financial statement components predict post announcement stock returns

technological change and the distribution of schooling evidence from green revolution india abstract in this paper we develop a two strata general equilibrium model of human capital acquisition with endogenous school construction that permits an assessment of the relative impacts of technological change and school availability on schooling investments in landless and landed households and illuminates how these choices interact through the adult and child labor markets the implications of the model are tested using a unique household level panel data set which constitutes a representative sample of rural india during the peak period of agricultural innovation associated with the green revolution 1968 1982 the empirical results indicate that the operation of the market for child labor worsens the distributional impact of agricultural productivity on school investment across landless and landed households as landless child labor is used to replace landed child labor lost due to increased child school attendance in landed households the results also suggest however that the allocation of school construction diminishes the adverse impact of technical change on the gap between landless and landed schooling investment

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

the ability of earnings to predict future operating cash flows has been increasing not decreasing we investigate the relationship between earnings and one year ahead operating cash flows from 1973 to 2000 although the extant research indicates a weakening relationship between contemporaneous earnings and stock prices over time we find that the relationship between current earnings and future operating cash flows has increased over time this result holds for numerous divisions of our sample out of sample predictions of operating cash flows generally show increasing forecast accuracy over time increasing accounting conservatism appears to play a role in this phenomenon

economic consequences of an aging population pip europe and japan are experiencing the aging of their populations aging implies a restructuring of the economy political issues which arise in an aging society include 1 a voting majority for the interests of the elderly 2 a voting majority of females 3 the domination of the decision power in corporate and similar ruling bodies and 4 unemployment or a long wait for promotion for younger people economic issues of an aging society include 1 population aging often occurs under reduced rates of growth of per capita national income 2 the relative economic status of the elderly very much depends on the currently existing tax transfer systems and 3 the income of families whose head is over age 65 has generally been more unequally distributed than the income for younger families issues concerning the labor supply of the elderly include 1 the availability of pension income and health limitations strongly influence decisions to retire and 2 older workers become disheartened and choose early retirement when facing bad reemployment prospects in general population aging is likely to have its most substantive effect on the overall level of productivity in an economy where technical knowledge is changing rapidly and strong competition necessitates a high degree of adaptability of the labor force

information and college access evidence from a randomized field experiment information and college access high school students from disadvantaged high schools in toronto were invited to take two surveys about three weeks apart half of the students taking the first survey were also shown a three minute video about the benefits of post secondary education pse and were invited to try out a financial aid calculator most students perceived returns to pse were high even among those not expecting to continue those exposed to the video especially those initially unsure about their own educational attainment reported significantly higher expected returns and lower concerns about costs and expressed a greater likelihood of pse attainment