Earnings Function Research Articles

Comparative study of Ohlson and cash flow discounting models in the prediction of the stock price

Two models derived from the dividend discount model attracted the attention of researchers: the residual income model (RIM) and the Ohlson model. These models are said to be dualistic since they combine both aspects of the economic and accounting vision. We propose, in our study, to test the performance of the dualistic evaluation model and to show the importance of accounting information. To do this, we will calculate the value of a listed company according to the actuarial valuation model, namely: the available cash flow discounting model (DCF) and the Ohlson model as a dualistic model. Then, we will determine, based on the expectation and the variance of the signed prediction error (SPE), the model that comes closest to the market price in the case of a Tunisian listed company. The results found in the Tunisian context show the superiority of the Ohlson model in the prediction of stock market prices. This model underlies the traditional belief that the company value is compounded of two main parts: the net value of the investment made in it (book value) and the present value of the period benefits (earnings) that together bring the “clean surplus” concept of the shareholders’ equity value. Specifically, Ohlson (1995) motivates the adoption of the historical price model in value relevance studies, which expresses value as a function of earnings and book values

What determines self-employment profits Evidence from India

The present paper contributes to the limited literature on the factors affecting self-employment performance in the developing country context of India. The study uses the India Human Development Survey (IHDS) panel data for the years 2004-2005 and 2011-2012. The study employs ordinary least squares (OLS) regression to analyse the determinants of profitability, making efforts to correct for potential endogeneity and selection bias in the earnings function. Attempts to correct for endogeneity are made using the instrumental variables method as well as using lag values of potentially endogenous variables in the earnings model. The findings point towards a significant influence of role models, capital constraints, human capital and the market environment on firm performance. However, social networks are not found to influence firm profitability significantly. Further, earnings are found to be significantly lower for female-headed firms and firms owned by socially-marginalised groups.

What determines self-employment profits Evidence from India

The present paper contributes to the limited literature on the factors affecting self-employment performance in the developing country context of India. The study uses the India Human Development Survey (IHDS) panel data for the years 2004-2005 and 2011-2012. The study employs ordinary least squares (OLS) regression to analyse the determinants of profitability, making efforts to correct for potential endogeneity and selection bias in the earnings function. Attempts to correct for endogeneity are made using the instrumental variables method as well as using lag values of potentially endogenous variables in the earnings model. The findings point towards a significant influence of role models, capital constraints, human capital and the market environment on firm performance. However, social networks are not found to influence firm profitability significantly. Further, earnings are found to be significantly lower for female-headed firms and firms owned by socially-marginalised groups.

ФІНАНСОВА СТІЙКІСТЬ ПЕНСІЙНОЇ СИСТЕМИ В УКРАЇНІ

The current period of social development is marked by institutional changes in the country's pension system, which last more than ten years and which have led to the creation of new pension institutions, the creation of a legal framework for future retirees. The need to reform pension insurance institutions in Ukraine is due to the demographic and economic problems of our pension system.In addition to economic and demographic factors outside the pension system, within the latter there are significant internal problems with maintaining the institution of early retirement, loss of insurance function and loss of earnings due to retirement due to retirement age and the mismatch between insurance rates associated with pension obligations.Measures to improve the pension system in order to achieve a socially acceptable level of pensions have yielded a number of positive results, but at the same time it is clear that the pension system in Ukraine still needs further restructuring, as reforms in this area do not have long-term financial reforms. Ensured stability and a balanced budget of the pension fund.Ongoing measures aimed at improving the pension system, achieving a socially acceptable level of pensions have made it possible to achieve a number of positive results, but at the same time it is clear that the pension system in Ukraine currently needs further transformations. whereas the reforms implemented in this area have not made it possible to achieve long-term financial stability and a balanced budget for the pension fund.There is no doubt that the emerging modern pension system should be adequate in accordance with the current conditions of socio-economic development of our country, as well as comply with international standards of pension provision, global trends in the development of pension institutions. The degree of effectiveness of a country's pension system can be determined on the basis of the high level of social security of pensioners provided by the pension institutions existing in that country.The degree of effectiveness of a country's pension system can be determined on the basis of the high level of social security of pensioners provided by the pension institutions existing in that country. At the same time, in modern society, older people, as shown by empirical studies, belong to those categories of the population who are less satisfied with their own lives and their quality than others; in addition, there has been a recent trend of a relative decline in the level of material security for pensioners.

A Hedonic Wage Regression Model for Vulnerable Workers in Malaysia: The Use of Exclusion Restriction as a Remedy for Self-Selection Bias

This paper uses an exclusion restriction variable as the key to resolve an identification problem in self-selection bias of a wage regression model. The study basically utilizes Hedonic Wage Theory (Rosen 1986, 1974) to test the relationship between vulnerable workers and wage. Analysis was made using the Mincerian semi-log earnings function (Mincer 1974) specified in the tradition of Becker’s Human Capital Model (Becker 1964) with a correction for self-selection bias. A total of 1705 private sector employees were selected and the result showed that the coefficient for predicted vulnerable worker variable was significant but non-positive. The implication of this result is that no adjustments in wages are made to compensate workers for undesirable job conditions. A third party, namely government interventions, is therefore needed in order to protect and enhance the well-being of the vulnerable workers.

Accounting Information and Market Value of Quoted Manufacturing Firms: Panel Data Evidence from Nigeria

This study the relationship between accounting information and the market value of quoted firms in Nigeria. The general objective was to examine if accounting information have any effect on market value of quoted firms. Cross sectional data was sourced from financial statement of 23 manufacturing firm from 2008-2017. Market value of the firms was modeled as a function of earnings per share, return on equity and dividend per share. Ordinary least square method of cointgration, unit root and granger causality test was used to determine the extent to which human resource cost affect quality of financial report. After cross examination of the validity of the pooled effect, fixed effect and the random effect, the study accepts the fixed effect model. The study found that the independent variables explained 79 percent variation on the market value of the quoted firms. The beta coefficient of the variables indicates return on equity; earnings per share, dividend per share have positive effect on the market value of the quoted firms. From the regression summary, the study concludes that there is significant relationship between accounting information and market value of the quoted firms. The study recommends that management of the firms should formulate dividend policy that enhances the market value of the firms. Corporate strategies should be directed toward internal and external factors that affect earnings per share.

Earnings and Firm Value in the Presence of Real Options

ABSTRACT To explain the empirically documented nonlinear, non-monotonic relationship between earnings and firm value, it suffices to assume that firms continually take profit-maximizing decisions in response to newly arriving investment opportunities. The real options embedded in these opportunities create hysteresis effects that lead to the well-known, but so far poorly understood, negative earnings-to-value relation among loss-making firms. Optionality also predicts the future growth component of firm value to be a decreasing function of earnings among highly profitable firms. More generally, the dynamic options model implies an earnings-to-value mapping that can be non-monotonic even over narrow earnings intervals. The commonly used linear earnings-response estimation may, therefore, be a poor approximation even locally. These phenomena arise because optionality makes past and future earnings the product of an unobservable flow of opportunities and decisions whose time dynamics cannot be described by direct linear past-to-future extrapolation.

ESTIMATING THE ECONOMIC RETURNS OF EDUCATION IN KSA BY USING MINCERIAN EARNINGS FUNCTION

This study aims to measure the economic rate of returns for investment in KSA. by using both basic and extended Mincerian Earnings Function. In addition to this, the comparison had been established between the results obtained and those of other researches in the same domain. We adopted in the research the model of Mincer in evaluating the rate of the economic returns according to previous classifications and the effective experience got by the individual in the work (measured by years). The result of the model application states that the economic return of university education in KSA has been improved by 10.35% based on the benchmark of Psacharopoulos International Return measured by 9.6%.Keywords: The individual Return, Earnings Function, Practical Experience, Theoretical ExperienceJEL Classifications: I26, J24, J16.DOI: https://doi.org/10.32479/ijefi.8659

Option Compensation and Optimism Bias in Management Earnings Forecasts

We examine the relation between the option compensation received by corporate managers and the extent of optimistic bias in their earnings forecasts. Specifically, we are interested in the extent to managers with a high amount of option compensation tend to have a self-serving optimism. We examine whether there is evidence consistent with the argument that managers have a self-serving interest to issue optimistic forecasts since their compensation is a function of stock price and higher earnings usually result in a higher share price. We hypothesize that management’ optimism (optimistic bias in their earnings forecasts) increases as their stock option compensation increases. Our empirical evidence indicates that highly compensated managers are associated with the likelihood of issuing upwardly biased (i.e. more optimistic) earnings forecasts.

Religious affiliation and earnings: Evidence from Brazil

This article examines the relationship between wages and religious affiliation for Brazil using conventional human capital earnings functions. Data drawn from the 1991, 2000, and 2010 Brazilian Censuses were analysed for men and women. Our results indicate that Brazilian men (women) who identified as Traditional Protestants received a small wage premium 2.6% (1.4%) compared to those who identified as Catholic—the largest religious denomination in Brazil—even after controlling for a range of demographic and social characteristics. In contrast, Brazilian men (women) who identified as Pentecostal Protestants received a sizeable wage penalty of 4.3% (5.8%). In an effort to explain the wage gap between different religious affiliations in Brazil, we also conducted a conventional Oaxaca-Blinder decomposition.

Separating different individual effects in a panel data model

SummaryIn this paper we consider a panel data model with individual effects that are arbitrarily correlated with the explanatory variables. The effects are composed as the sum of two different interpretable components, such as inefficiency versus heterogeneity in a production frontier setting, or ability versus socioeconomic background in an earnings function, or genetics versus environment in an epidemiological analysis. We wish to predict the two components separately. This is made possible by assuming that there are observables that are correlated with the first component but not with the second, and other observables that are correlated with the second component but not with the first. This can be true in terms of either simple correlations or partial correlations.

Article 3 from Series of 5: Black-White Differences in Canadian Educational Attainments and Earnings

NOTE: THIS ARTICLE WAS PUBLISHED WITH THE INFORMING SCIENCE INSTITUTE. Aim/Purpose.................................................................................................................................................................................................... Data from two large Canadian surveys are used to analyze educational and earnings performance of Blacks and Whites. The main purpose of this study is to determine how well blacks perform relative to Whites in these two areas. Background........................................................................................................................................................................................................ Canadian researchers have been studying black performance in education and labor markets since the 1970’s. Much of this research was done before 2000. It showed that there was considerable discrimination in the way Blacks were treated in the labor market but fewer problems concerning their success in the educational system. Since then more data has become available and it is possible to re-examine this issue and explore new dimensions of black economic performance. Methodology..................................................................................................................................................................................................... Educational outcomes are categorical and are analyzed by ordered Beta probability models. Earnings functions are estimated by mixed linear regression models where the mixing procedure is used to account for unobserved differences in respondent ability. Contribution....................................................................................................................................................................................................... Our results update and expand what was known before 2016 using the most resent Canadian Census and Youth Smoking Survey of which the latter contains academic performance information for students in primary and secondary school. Findings.............................................................................................................................................................................................................. The main results show that while Black males are able to access the educational system without much racial prejudice, they are not treated fairly in the labor market. Black females do less well in both the educational system and labor markets. Blacks earn significantly less than Whites for all age groups, all levels of education, and in all occupations. They are more likely to be less than fully employed and more likely to be at the bottom of the income distribution. These findings are consistent with earlier studies but the amount of discrimination is larger and black/white earnings differentials are larger than those found by researchers using earlier surveys. Recommendation for Practitioners .................................................................................................................................................................. These results are disturbing and the persistence over long periods of time suggests that some form of expanded government intervention is needed. Recommendations for Researchers................................................................................................................................................................. The surveys used here provide inadequate information on the process of discrimination. More and better data is needed to understand why, for example, black students do less well than their white counterparts in primary and secondary school and yet overcome these problems in tertiary education. Impact on Society.............................................................................................................................................................................................. Discrimination of any sort is costly to the victims but is also detrimental to society as a whole since it represents a failure our institutions to deliver a fair and just society for all groups regardless of race or ethnicity. We hope our results will draw attention to the need to address this problem.

Childhood Bullying and Labor Market Outcomes in The United States

This paper contributes to a nascent economic literature on bullying. Using the National Longitudinal Survey of Youth 1997 data, I explored the relationship between childhood bullying and later earnings. Since males and females are usually subject to different kinds of bullying and coping strategies vary with age, I distinguished between pre-teen and teenage bullying by gender. After delineating the pathways by which being bullied could potentially lead to lower earnings, the analysis first considered the probability of being bullied either as a teenager or before the age of 12. Next, after a simple ordinary least squares analysis of a human capital earnings function, a detailed propensity score analysis with multiple matching schemes was undertaken separately for males and females, further subdivided by when bullying had occurred. Results indicated males bullied as teenagers had earnings 23% lower than their non-bullied counterparts. Females did not suffer this penalty, nor did children who were bullied only below the age of 12. However, being bullied in childhood increased significantly the probability of being bullied later. In terms of human capital formation and possible impact on later productivity, teen bullying may be affecting men the most. Current findings may also be useful in encouraging a targeted focus on those who may be in greater danger of being bullied. Children who have changed schools several times, males with a learning disability, or a vision, speech or hearing problem, and females with some kind of deformity would be targeted significantly more.

Labor market segmentation and occupational mobility in Algeria: Repeated cross‐sectional and longitudinal analyses (2007 to 2012)

AbstractThe paper identifies the determinants and the patterns of occupational mobility across the formal/informal employment divide as well as within the informal sector. Cross‐sectional analyses are applied to two samples (1,252 and 2,026 individuals) from two representative household surveys conducted in 2007 and 2012 in Bejaia, an east‐central region of Algeria. In the first place, using a Mincer earnings function shows there is a substantial wage gap regarding the formal/informal wage employment divide. However, human capital theory applies to formal employees rather than to informal ones. Hence, labor market segmentation is not reducible to earnings functions. In the second place, a multinomial logit model captures the determinants of occupational mobility, which depend on the characteristics of individuals: age, gender, marital status, and human capital. Finally, the paper explores from a longitudinal perspective a cohort of 445 individuals both surveyed in 2007 and 2012. The aforementioned determinants explain the patterns of occupational mobility of active individuals who experience a change that improves or deteriorates their job position, while shifting in both directions across the formal and the informal sector and within the informal sector.

Estimating the Return of Higher Education in Algeria: Evidence From Adrar University

This study aims to measure the individual rate of return for investment in higher education at Adrar University by using both basic and extended Mincerian Earnings Function. In addition to this, the comparison had been established between the results obtained and those of other researches in the same domain.We adopted in the research the model of Mincer in evaluating the rate of the economic returns according to previous classifications and the effective experience got by the individual in the work (measured by years). The result of the model application states that the economic return of university education in Algeria has been improved by 8.49% based on the benchmark of Psacharopoulos International Return measured by 9.8%.We conclude that there is no general trend by which we can interpret the results but this lack of interpretation refers to the typical situation of the Algerian economy and its impact on the human capital (education specifically) as it is known that the relationship between the economic development and the human development is positive.

Gender Inequality in Wage Rate in Indonesia

Education is an indicator of advanced development, as education produces high quality human resources. However, the existence of gender gap in society causes low participation of women in education compared to men. This phenomenon happens due to various factors such as government policy, socio-economic, and culture. As such, this study aims to estimate the rate of return of gender-based school in Indonesia using Mincer earnings function. This study uses database Indonesia Family Life Survey (IFLS) 4 and 5. The two-step Heckman model of ordinary least square (OLS) is used for data analysis. The findings of this study are as follows. First, return to schooling is higher for male than female, for both service and manufacturing industries. Second, years of schooling, years of schooling interaction with manufacturing industril, years of schooling interaction with in service industril, the squared years of schooling interaction with manufacturing industril, the squared years of schooling interaction with service industril, gender interaction with service industril, gender interaction with manufacturing industril and urban/rural location are significantly influence return to schooling. While, squared years of schooling is not significantly influence return to schooling.

ON THE RELIABILITY AND VALIDITY OF SELF‐REPORTED ILLEGAL EARNINGS: IMPLICATIONS FOR THE STUDY OF CRIMINAL ACHIEVEMENT*

The study of the monetary returns to criminal activity is a central component in many emerging areas of criminology, including rational choice and offender decision‐making, desistance, and criminal achievement. Scholars have been increasingly captivated with specification of the earnings function and with examining how variations in illegal earnings predict important outcomes such as persistence in offending. The potential utility of findings in related empirical studies hinges on the quality of the key measure, self‐reported illegal earnings. Yet to date scant attention has been paid by researchers to the measurement properties of this metric. We analyze self‐reported illegal earnings generated from a variety of instrumental crimes by using data from the Pathways to Desistance Study (n = 585) and the National Supported Work Project (n = 1,509), which are two longitudinal data sets of active offenders separated by more than 30 years. Findings based on analyses both within and between data sets reveal support for the internal consistency reliability and criterion validity of self‐reported illegal earnings. Moreover, the results reveal premiums in terms of higher earnings associated with different crime types, which are persistent both over time and across data sets. Implications and future directions for advancing the theoretical study of criminal achievement are also discussed.

Self-Employment Profits: The Case of India

The present paper contributes to the limited literature on the factors affecting firm performance in the developing country context of India. The study uses the Indian Human Development Survey (IHDS) panel data for the years 2005-06 and 2011-12. The study employs Ordinary Least Squares (OLS) regression to analyse the determinants of profitability, making efforts to correct for potential endogeneity and selection bias in the earnings function. Attempts to correct for endogeneity is made using instrumental variables method as well as using lag values of potentially endogenous variables in the earnings model. The findings point towards a significant influence of role models, capital constraints, human capital and the market environment on firm performance. However, social networks are not found to influence firm profitability significantly. Further, earnings are found to be significantly lower for female-headed firms and firms owned by socially-marginalized groups.

Investment and interruption: effects of the US experience on the earnings of return migrants in Mexico

ABSTRACTMigration is widely viewed as an investment in human capital. However, due to the imperfect transferability of skills and knowledge across countries, migration trips are also career interruptions, especially for return migrants who may meanwhile experience depreciation of home country-specific skills. This article demonstrates that migration experience increases return migrants’ earnings in the home country on the condition that the migration stay is sufficiently long and mostly uninterrupted. Employing the revised human capital earnings function, the empirical study shows that only a barely interrupted US experience longer than five years, regardless of the legal status of the migration trips, predicts higher earnings of male return migrants in Mexico than comparable non-migrants. Robust findings emerge controlling for unobserved individual \\]acteristics or using instrumental variables to deal with the self-selection and endogeneity. Short migration stays in the US and frequent traveling provide return migrants no wage premium in Mexico.

The Return on Investment for Higher Education in the United States

As the United States economy continues its recovery from the financial crisis, investments of all types are treated with higher levels of optimism. A college education is no exception; however, it does bring up the question of what the rate of return the investment of a college education provides an individual This paper attempts to build off of Mincer’s (1975), Cohn’s and Hughes’s (1994), Psacharopoulos’s (1994) and Athanassiadis’s (2011) research by first modeling the overall return on investment for higher education for full-time workers through a Mincer earnings function, and then determining the return on investment on earnings for workers across various time periods through “the short-cut method.”