the use of unsigned earnings quality measures in tests of earnings management this paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management first we analytically develop the mean and variance of the distribution of absolute discretionary accruals and show that the expected value is an increasing function of the variance in the underlying error term from the first stage discretionary accrual estimation model second we highlight several firm characteristics that are related to the error variance in discretionary accrual estimation models using simulations we show that correlation between the earnings management partitioning variable and these firm characteristics leads to an overrejection of the null hypothesis of no earnings management third we provide research design suggestions to help researchers mitigate the potential bias arising from the use of unsigned measures of earnings management using these suggestions we replicate a recent study and demonstrate that the inferences change after controlling for operating volatility

trade credit in a monetary economy abstract this paper examines the importance of financial and technological stochastic trends in the context of a stochastic dynamic general equilibrium monetary economy with multiple means of payment in contrast to earlier empirical work we find support for both a long run substitution condition between money trade credit and interest rates as well as a long run transactions demand for alternative payments media consistent with real business cycle frameworks

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

does it matter how monetary policy is implemented abstract in the u s existing monetary base measures add an adjustment factor for changes in reserve requirement ratios to high powered money implicitly the monetary base assumes that the economic effects of changes in reserve requirements are identical to those due to changes in high powered money theory however does not generally support the prediction that the two policy tools will have the same economic effects structural vars are estimated to compare the short run paths of inflation and output growth under two different types of policy shocks in doing so this analysis gives one a measure of the costs associated with this implicit equivalence assumption the evidence is consistent with the hypothesis that the federal reserve at least partially offsets reserve requirement changes with open market operations and the hypothesis that dynamic explanations of macroeconomic variables are improved by separating reserve requirement changes from other monetary policy moves

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

real business cycles sticky wages or sticky prices the impact of technology shocks on us manufacturing in this paper we examine empirically the predictions of a range of theoretical models which give a prominent role to technology shocks in explaining business cycles to this end we estimate 4 digit sic industry level var models for us manufacturing using real output the real wage and utilization corrected measures of technology and labor input our results support both sticky wage dge and rbc models over sticky price dge models moreover they cast some doubt on the importance of technology shocks as propulsive mechanism for business cycles at the industry level

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

changes in the value relevance of earnings and book values over the past forty years this paper investigates systematic changes in the value relevance of earnings and book values over time we report three primary findings first contrary to claims in the professional literature the combined value relevance of earnings and book values has not declined over the past forty years and in fact appears to have increased slightly second while the incremental value relevance of bottom line earnings has declined it has been replaced by increasing value relevance of book values finally much of the shift in value relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one time items the increasing frequency of negative earnings and changes in average firm size and intangible intensity across time

the probable foundations of sustainabilism information energy and entropy based definition of capital homo sustainabiliticus and the need for a new gold abstract this conceptual interdisciplinary paper will start with an introduction to the new networked knowledge based global economy and the importance of intellectual and specifically human capital next an advanced definition of human and other forms of capital using information energy and entropy will be introduced this will be followed by a discussion of the premises framing the study of economics and will focus on the role of law in the economy afterwards the paper will suggest the addition of a new model of humans that should serve as the base for the concept of law the homo sustainabiliticus ensuing this discussion and consistent with the newly proposed definition of capital a proposal for a new currency new gold will be offered this proposal suggests viewing usable renewable energy knowledge and data as the most important assets for the 21st century and is seen as the building block for the new sustainabilistic economy

the changing landscape of accrual accounting a fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows indicating an inherent negative correlation between accruals and cash flows we show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years the adjusted r 2 from regressing changes in accruals on changes in cash flows drops from about 70 90 in the 1960s to near zero under 20 in more recent years in exploring potential reasons for the observed attenuation we find that increases in non timing related accrual recognition as proxied by one time and nonoperating items and the frequency of loss firm years explain the majority of the overall decline on the other hand temporal changes in the matching between revenues and expenses and the growth of intangible intensive industries play only a limited role in explaining the observed attenuation finally the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

testing for trends in the terms of trade between primary commodities and manufactured goods abstract this paper joins the statistical debate on the terms of trade between primary commodities and manufactured goods by contributing to the methodological discussion and presenting new evidence using data series covering almost the whole of the 20th century using statistical tests that take into account breaks in the series it is found that over the 20th century the relative prices of primary commodities dropped to nearly one third of their level at the beginning of the century in two installments when random shocks led to structural breaks and not in a gradual way as implied by either a deterministic or stochastic trend possible reasons for the structural breaks and their policy implications are discussed

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

the effect of audit adjustments on earnings quality evidence from china we examine how adjustments to earnings during year end audits affect measures of earnings quality there are four key findings first audit adjustments cause earnings to become smoother and more persistent second the adjustments result in higher accrual quality third audit adjustments have a larger negative effect on signed accruals than absolute accruals fourth the adjustments do not reduce the discontinuity in the earnings distribution around zero these findings are of interest to researchers who use earnings properties as proxies for earnings quality and audit quality however we caution that our findings for china may not generalize to other countries

can tax policy help explain state level macroeconomic growth abstract this paper empirically tests the role of tax distortions in explaining state level economic growth through the estimation of disaggregated personal income general sales and property tax rates the results show that these disaggregated tax rates generate predictions more consistent with growth theory

the causes of bank failures deflationary spells abstract unexpected reductions in inflation induce debtor insolvency and bank failures with lags of up to eight years outside money is non neutral because the default of marginal banks and the rising costs of surviving banks reduce the supply of monetary services

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

a banking explanation of the us velocity of money 1919 2004 the paper shows that us gdp velocity of m1 money has exhibited long cycles around a 1 25 per year upward trend during the 1919 2004 period it explains the velocity cycles through shocks constructed from a dsge model and annual time series data ingram et al 1994 model velocity is stable along the balanced growth path which features endogenous growth and decentralized banking hat produces exchange credit positive shocks to credit productivity and money supply increase velocity as money demand falls while positive goods productivity shock raises temporary output and velocity the paper explains such velocity volatility at both business cycle and long run frequencies with filtered velocity turning negative starting during the 1930s and the 1987 crashes and again around 2003 results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

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

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

are declining effective tax rates indicative of tax avoidance insight from effective tax rate reconciliations abstract effective tax rates etrs are often used to compare tax avoidance across firms and time using firms detailed tax footnote data we find that the effect of valuation allowances va related to prior period losses biases gaap etrs this downward bias explains almost all of the downward trend in domestic firms etrs over the last 20 years we also find that vas explain cross sectional differences in etrs for both domestic and multinational firms we show this bias extends to cash etrs and the henry and sansing 2018 tax avoidance measure we develop a methodology for substantially reducing the bias in both time series and cross sectional analyses of cash and gaap etrs overall our results suggest firms loss histories and gaap rules influence inferences from tax avoidance proxies

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

supply shocks and the interest rate supply shocks and the interest rate i introduction a new approach to business cycles that stresses intertemporal substitution possibilities and market clearing equilibria has recently gained prominence key models that use this new classical framework include those of lucas 1972 barro 1976 1981b 1987a 1987g kydland and prescott 1980 1982 long and plosser 1983 and king and plosser 1984 although these models share the basic similarity of intertemporal maximization and market clearing they differ about which factors cause business cycle fluctuations however most of them admit a role for supply shocks such as opec oil price shocks and agricultural harvest failures most of the empirical work using the market clearing approach concentrates on quantities such as real gnp and ignores the key price variable of the intertemporal substitutional approach the real interest rate exceptions are the papers by benjamin and kochin 1984 and barro 1987a who use eighteenth and nineteenth century data to examine the effect of government spending on the nominal interest rate this paper extends previous work by studying not only the effects of government spending on the interest rate but also the effects of supply shocks on the interest rate the classic supply shock agricultural harvests is used indeed to the best of our knowledge this is the first paper to investigate how agricultural supply shocks affect the interest rate and as such it provides additional evidence about the factors that influence interest rates although the theory behind this work is cast in the framework of the equilibrium approach keynesian models also concur with the theoretical prediction that supply shocks raise the real interest rate thus this empirical investigation of the impact of harvests on the interest rate will command attention from keynesian as well as new classical macroeconomists section ii reviewers the theory used to motivate the work the third section discusses the data the fourth section presents the empirical results while the last section contains conclusions ii theory the equilibrium approach to macroeconomics emphasizes the role played by intertemporal optimization consumers maximize their intertemporal utility functions while firms maximize their profits as a result an intertemporal relative price the ex ante real interest rate emerges as a crucial variable consider the effect on the ex ante real interest rate from a temporary adverse supply shock such as a harvest failure in an agricultural closed economy consumers faced with a temporary shortfall in income and trying to smooth their consumption generally try to borrow in order to maintain their usual level of consumption thus the ex ante real interest rate increases much the same argument applies to government spending a temporary increase in government spending reduces the resources currently available to the private sector then as in the case of a temporary supply shock the increased demand for borrowing to smooth the reduction in disposable income leads to a higher interest rate an open economy is different when faced with a temporary reduction in resources from either an adverse supply shock or a temporary increase in government spending the private sector in an open economy is able to borrow from abroad by running a balance of trade deficit if the country in question is a small part of the world economy the increased borrowing does not affect the world ex ante real interest rate so the effect on the country s ex ante real interest rate is nil returning to the case of a closed economy supply shocks and changes in government spending affect the ex ante real interest rate only if they are temporary if they were permanent consumers would not have the same incentive to borrow so the interest rate would tend to be constant

an assessment of how well we account for intangibles estimates of intangible capital stock are of prime importance for accurate measurement of productivity growth aggregate intangible capital stock is usually estimated using the so called corrado hulten sichel chs new growth accounting framework yet this framework has not received much academic scrutiny to date this article proposes a validity test of two intangible investment series in the chs framework namely brand equity and architectural and engineering designs the test involves assessing the extent to which these intangible investment series explain the demand for trademarks and design rights the econometric analysis is performed on an unbalanced panel of 32 countries from 1980 to 2010 the results suggest that brand equity investment is a powerful predictor of trademark applications however investment in design activity is not correlated with the count of design rights which i take as evidence that current methodologies do not account well for design activities

democrats republicans and taxes evidence that political parties matter i estimate the influence of political parties on state tax burdens over a forty year period 1960 2000 holding constant a large number of state and voter characteristic variables i find that i tax burdens are higher when democrats control the state legislature compared to when republicans are in control ii the political party of the governor has little effect after controlling for partisan influences in the state legislature i explain how both findings are consistent with median voter theory my results suggest that after five years of democratic control of the legislature state government would be approximately 3 to 5 percent larger than if republicans controlled the legislature during that same period with the better specifications producing estimates in the higher end of this range

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

the u s embargo act of 1807 its impact on new england money banking and economic activity the u s embargo act of 1807 its impact of new england money banking and economic activity i introduction the period 1793 through 1807 was one of unusual prosperity in the united states paced by the growth of american carrying and re export trade 1 the embargo act of 1807 however supposedly halted this period of growth and prosperity the act was an attempt by a new nation to persuade great britain and france to refrain from seizing neutral american ships by prohibiting the trading of certain goods between the united states and other countries the provisions of the act forbade u s ships to sail with cargoes to foreign ports the act was in effect from december 1807 through march 1809 historians generally assert that the embargo had at least three important consequences of the u s economy the embargo allegedly initiated a severe economic depression led to a signficant increase in the level of smuggling between the united states and other countries and was instrumental in bringing about an expansion of domestic manufacturing that started the united states on a path to self sufficiency with respect to the depression effects of the embargo mcmaster 1903 415 described the economic losses of the period as follows the newspapers were full of insolvent debtor notices all over the country the court house doors the tavern doors the post offices the cross road posts were covered with advertisements of sheriffs sales in the cities the jails were not large enough to hold the debtors at new york during 1809 thirteen hundred men were imprisoned for no other crime than being ruined by the embargo a traveler who saw the city in this day of distress assures us that it looked like a town ravaged by pestilence the counting houses were shut or advertised to let the coffee houses were almost empty the streets along the water side were almost deserted the ships were dismantled their decks were cleared their hatches were battened down illegal trade arose as people searched for other sources of income malone and rauch 1960 118 described the situation in the following manner the ancient art of smuggling was revived particularly along the land frontier with canada where drovers of wagon trains shot down federal agents and concerning the stimulative effect of the embargo upon the rise in domestic manufacturing north 1961 56 stated the closing off of the import trade was effective in promoting the rise of domestic manufactures and capital which had been devoted to shipping and foreign commerce was partially absorbed in a rapid growth of industry before 1808 only fifteen cotton mills had been built in the united states one in 1791 one in 1795 two more in 1803 and 1808 by the end of 1809 eighty seven additional mills had been constructed and capacity had been increased from eight thousand spindles in 1808 to thirty one thousand at the end of 1809 and an estimated eighty thousand by 1811 other branches of manufacturing also made substantial gains through 1814 similar comments concerning the embargo are abundant in most economic history texts and in numerous articles devoted to the subject while dramatic such discussion is based on casual empiricism at best and little in the way of rigorous economic analysis has ever been applied to discern the actual effects of the embargo upon the u s economy as usual with such historically remote events a paucity of data on such variables as real income output and employment constitutes the major obstacle to empirical analysis until recently economic historians have attempted to make inferences about the effects of the embargo upon the economy by relying primarily upon data reflecting the volume of import export and re export trade domestic and imported price indices and governmental duties 2 in a recent article for example frankel 1982 argues that an examination of british shipping statistics rather than those of the u

taxation aggregate activity and economic growth cross country evidence on some supply side hypotheses data from sixty three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity apparent negative effects of tax rates on growth disappear upon controlling for 1 potential endogeneity of average tax rates to per capita income and 2 the relation between economic growth and per capita income however controlling for average tax rates increases in marginal tax rates have negative effects on the level of economic activity this evidence supports the hypothesis that reductions in the progressivity of tax rates induce a parallel shift upward in the growth path

changes in accrual properties and operating environment implications for cash flow predictability abstract this paper reconciles conflicting evidence in prior literature on the relative ability of earnings and cash flows in predicting future cash flows further we investigate the implications of temporal shifts in accrual properties and operating environment for cash flow predictability three key insights emerge first cash flows consistently outperform earnings in predicting future cash flows second accruals and its components including those capturing non articulating events have incremental albeit small predictive ability over cash flows third earnings ability to predict future cash flows has increased over the period 1989 2015 due to changes in operating environment rather than accrual properties

reserves announcements and interest rates does monetary policy matter the author provides evidence on the perceived existence of strong liquidity effect the analysis is based on the response of the term structure of interest rates to the weekly federal reserve announcements of bank reserves during the post october 1979 period it is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money a precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the fed

sources of output fluctuations in the united states during the inter war and post war years abstract this paper attempts to decompose the sources of fluctuations in industry output into 1 an aggregate national shock 2 industry group specific shocks and 3 idiosyncratic factors the empirical methodology is the engle watson dynamic mimic model the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing technology shocks disaggregate data from the inter war and post war periods are examined conclusions on the relative importance of the various shocks seem to be dependent on the period being considered the single index theory of the cycle seems more appropriate for the inter war period

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

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

what are the most promising conduits for foreign knowledge inflows innovation networks in the chinese pharmaceutical industry we study innovation networks in emerging markets where foreign actors have been identified as key sources of knowledge spillovers as well as progenitors of industry clusters focusing on connectivity as a channel for international knowledge sourcing we widen our lens beyond mnes to include critical innovative actors such as research institutions i e universities and research centers we examine the geographic dispersion of co inventor networks generated by us patents associated with the chinese pharmaceutical industry previous research has highlighted the role of organizationally driven mne networks as enablers of foreign knowledge inflows to less developed countries however our results emphasize the critical role of individually motivated networks arising from advanced economy research institutions in connecting china to global knowledge networks

idiosyncratic return volatility cash flows and product market competition over the past 40 years the volatility of the average stock return has drastically outpaced total market volatility thus idiosyncratic return volatility has dramatically increased we estimate this increase to be 6 per year consistent with an efficient market this result is mirrored by an increase in the idiosyncratic volatility of fundamental cash flows we argue that these findings are attributable to the more intense economy wide competition various cross sectional and time series tests support this idea economic competitiveness facilitates reinterpretation of the results from the cross country r2 literature as well as the us idiosyncratic risk literature jel g12 g14

intangible capital and the rise in wage and hours volatility in a standard real business cycle model extended to include intangible capital ic i show that a rise in the income share of ic in the production function in line with data can account for a significant share of the increase in real wage volatility both absolute and relative to income and labor input volatility relative to income observed in the u s since the mid 1980 s even as volatility of output declined intangible capital accumulates stochastically and similar to final goods requires physical capital intangible capital and labor to produce under these conditions an increase in the share of ic in production increases the propagation of the ic specific shock which raises absolute and relative wage and labor input volatility the higher propagation of the ic shock also accounts for the large decline in the pro cyclicality of labor productivity relative to both output and labor observed during this period

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

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

time to change your investment model we demonstrate empirically that the gains from predicting corporate earnings or consensus hits and misses an activity at the core of most investment methodologies have been shrinking fast over the past 30 years we identify the main reasons for this loss of earnings relevance and propose an improved alternative to current investment methodologies one that focuses on the strategic assets of the enterprise and their contribution to maintaining the company s competitive edge we demonstrate this investment methodology using subscription based companies

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

an inquiry into the sources of macroeconomic fluctuations abstract this paper attempts to decompose the sources of fluctuations in quarterly employment by industry and region into 1 an aggregate national shock 2 region specific shocks 3 industry specific shocks and 4 idiosyncratic factors the empirical analysis is motivated by a dynamic theory of the business cycle the empirical methodology is the engle watson dynamic mimic model implemented via the em algorithm the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing industrial or regional shocks

asymmetric timeliness of earnings market to book and conservatism in financial reporting abstract using an accounting conservatism theory that reflects accounting s role in practice we investigate the relation between two extensively used measures of conservatism asymmetric timeliness of earnings and the market to book ratio mtb we predict and observe that when asymmetric timeliness is measured cumulatively over long periods its relation with end of period mtb is positive when asymmetric timeliness is measured over short periods its dependence on beginning of period composition of equity value ev is responsible for its negative association with mtb further asymmetric timeliness appears to measure conservatism more efficiently when it is estimated cumulatively over multiple periods

unexpected monetary disturbances during the gold standard era abstract this empirical paper uses the barro methodology of estimating unexpected monetary shocks to determine the effect these shocks had on real output in the u s during the gold standard era between 1880 and 1913 it also investigates whether changes in a measure of financial intermediation had real effects the results indicate that neither expected nor unexpected money shocks affected output changes in financial intermediation however were significantly correlated with output this result lends support to theories which stress the endogeneity of broad measures of the money supply

cash holdings and labor heterogeneity the role of skilled labor firms differ in their dependence on skilled labor and face labor adjustment costs that increase with their workers skill level we show that firms with a higher share of skilled workers and thus less flexibility to adjust their labor demand in response to cash flow shocks hold more precautionary cash the effect of labor skills on cash holdings is more pronounced for financially constrained firms and varies with exogenous differences in firing and hiring costs we address endogeneity concerns by using subsamples of firms with reasonably similar characteristics propensity score matching and a quasi experimental shock to labor markets

managerial attention and worker performance we present a novel theory of the employment relationship a manager can invest in attention technology to recognize good worker performance the technology may break and is costly to replace we show that as time passes without recognition the worker s belief about the manager s technology worsens and his effort declines the manager responds by investing but this investment is insufficient to stop the decline in effort and eventually becomes decreasing the relationship therefore continues deteriorating and a return to high performance becomes increasingly unlikely these deteriorating dynamics do not arise when recognition is of bad performance or independent of effort

tax policy and state economic growth the long run and short run of it this paper uses a pooled mean group pmg estimator to evaluate the effects of tax policy on state level growth we find that property and sales tax rates have negative effects on long run income growth while income tax rates have no impact

association between accounting performance measures and stock prices a test of the life cycle hypothesis abstract this paper posits that stock market response to two accounting performance measures sales growth and capital investment is a function of firm life cycle stage firms are grouped into various life cycle portfolios using dividend payout sales growth and age as predicted the empirical results indicate a monotonic decline in the response coefficients of unexpected sales growth and unexpected capital investment from the growth to the stagnant stages additional analysis suggests that this relation is not driven by a firm size effect risk differences or measurement error in the proxies for performance measures

the source of fluctuations in money evidence from trade credit abstract this paper tests the relative importance of technology shocks and financial shocks as sources of fluctuations in money the model extends the theory of king and plosser 1984 by recognizing that both money and trade credit provide transactions services under certain conditions the co movements between money and trade credit can reveal the nature of the underlying shocks the empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money in the long run and at business cycle frequencies on the other hand technology shocks appear to be more important at seasonal frequencies

demand shocks supply shocks and the cyclicality of real wages the behaviour of real wages over the business cycle has received increasiing attention in recent years the cyclicality of real wages constitues an important aspect of recent models of the business cycle however empirical studies undertaken to determine whether real wages are procyclical or countercyclical have reported conflicting findings in thiis paper we use vector autoregressions to analyse the cyclicality of real wages we find that the source of the disturbance plays a decisive role in the cyclical behaviour of real wages in particular we demonstrate that a supply shock generates procyclical real wages whereas a demand shock yields countercyclicality

the life cycle of a competitive industry firm numbers first rise then later fall as an industry evolves this nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit equilibrium time paths for price and quantity also share features of the data the model is estimated using data from the u s automobile tire industry a particularly dramatic example of the nonmonotonicity in firm numbers

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

how do you measure a technological revolution it is hardly news that we are in the midst of rapid economic change the advances in infor mation and communication technology ict in the life and other sciences and their profusion of innovative products from the newest electronic devices to the latest drugs and treatments are ample evidence equally pervasive are new busi ness models in services big box retail online banking on demand media and the explosion in social networking and new business practices ushered in by the internet telework virtual meetings job boards given the magnitude of the changes brought on by these innovations it is useful to step back and ask what does eco nomic analysis have to say about the sources and mechanisms of these shifts and revolutions and what economic metrics are available to measure their overall size and impact the received theory of economic growth is the natural candidate for this job it came of age in the 1950s and 1960s with the neoclassi cal models and emergence of aggregate growth accounting the latter has become the work horse of empirical macroeconomic growth analysis and the basis for official productiv ity statistics put out by the bureau of labor statistics bls since 1983 a technological revolution appears in this framework as an increase in the fruits of innovation as measured by the shift in an aggregate production function termed multifactor productivity or mfp and possibly as an increase in the aggregate saving rate as reflected in an increased rate of capital formation mfp is an exogenous phenomenon

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

have financial statements lost their relevance the authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past they test for value relevance by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market adjusted returns both analyses are applied to a broad sample of exchange listed and nasdaq firms for the 1952 94 period the authors find mixed evidence on value relevance of financial statement reporting during the test period

high profit strategies in mature capital goods industries a contingency approach high profit and low profit strategic gestalts in two different types of mature capital goods industries are examined multiple avenues to high profits are found within both types but they differ

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances