Earnings Patterns Research Articles

HOW MARGINAL TAX RATES AFFECT FAMILIES AT VARIOUS LEVELS OF POVERTY

High marginal tax rates can make moving above poverty very difficult for low-income families. These high tax rates result from increasing direct taxes (both state and federal) as well as decreasing transfer payments (including both Supplemental Nutrition Assistance Program benefits and Temporary Assistance for Needy Families). Depending on which state a person lives, a single parent with two children can face an average marginal tax rate of over 100 percent or as low as 26.6 percent as they move from the poverty level of income to 150 percent of the poverty level. If her earnings are limited to only six months of the year, she may retain transfer benefits for the remaining six months, lowering her marginal rate over the same income range to between 66.0 percent and –17.7 percent for those additional earnings. Our analysis shows how sensitive marginal tax rates are to assumptions about earnings patterns and program participation.

Quantile regression and structural change in the Italian wage equation

A test for structural break based on quantile regressions (QR) reveals the impact of a break in the tails of the conditional distribution, unveiling an opposite behavior in the tails that balances at the mean and that cannot be found using OLS. By repeatedly computing the QR test it is possible to check for stability of the coefficients both over time and with respect to dichotomies in the explanatory variables, such as generations or regions. This provides evidence of a break in earnings i) over time, with wages decreasing in the latest period; ii) across generations, where young workers experience a decrease in returns to education; and iii) across regions, with an opposite pattern of earnings, unstable at the lower quantiles in the southern regions and unstable at the higher wages in the north-center area.

Learning about the nature of production from equilibrium assignment patterns

This paper exploits empirically a key insight from Lucas (1978) and Rosen (1982): that the organization of production and the distribution of earnings across individuals are jointly determined by the equilibrium assignment of individuals to firms and hierarchical positions. We study how different classes of production functions generate alternative equilibrium assignments. We then use confidential Census data on U.S. law offices to investigate the form that the production function should take to rationalize earnings patterns in legal services. We argue that earnings patterns in this industry are consistent with a production function that is characterized by asymmetric sensitivity to the skill of agents in different organizational positions, complementarity between managers’ and workers’ skill, and scale effects in individual skill.

Les spécificités de la gestion des résultats des entreprises tunisiennes à travers une démarche par entretiens

L’objectif de cet article est de comprendre les raisons qui poussent les entreprises tunisiennes a gerer leurs resultats et d’examiner les differentes pratiques utilisees a cette fin. Une serie d’entretiens a permis de montrer que les societes non cotees gerent leurs resultats pour minimiser l’impot. Les societes cotees gerent leurs resultats pour eviter les pertes ou pour lisser leurs benefices. Les banques, qui constituent la principale source de financement de l’economie tunisienne, cherchent a afficher des resultats a la hausse. Pour ce faire, elles recourent non seulement a des manipulations de leurs accruals, mais aussi a des manipulations reelles. Les filiales des multinationales ont moins recours a ces pratiques.

Workforce Skills across the Urban-Rural Hierarchy

This paper examines differences in the skill content of work throughout the United States, ranging from densely populated city centers to isolated and sparsely populated rural areas. To do so, we classify detailed geographic areas into categories along the entire urban-rural hierarchy. An occupation-based cluster analysis is then used to measure the types of skills available in the regional workforce, which allows for a broader measure of human capital than is captured by conventional measures. We find that the occupation clusters most prevalent in urban areas — scientists, engineers, and executives — are characterized by high levels of social and resource-management skills, as well as the ability to generate ideas and solve complex problems. By contrast, the occupation clusters that are most prevalent in rural areas — machinists, makers, and laborers — are among the lowest in terms of required skills. These differences in the skill content of work shed light on the pattern of earnings observed across the urban-rural hierarchy.

Generation and Earnings Patterns among Chinese, Filipino, and Korean Americans in New York

By treating the 1.5 generation as a distinctive analytic category, this paper compares the effects of generational status on earnings among men of Chinese, Filipinos, and Korean descents in the New York metropolitan area. Our analyses of the 5 percent Public Use Microdata Sample data of the 2000 U.S. census show that all other background characteristics held equal, 1.5-generation Chinese and Filipino American workers make significantly higher earnings than second-generation workers. However, Korean American workers do not exhibit this 1.5-generation advantage. These findings support a segmented assimilation theory, the view that immigrant assimilation paths are not uniform across ethnic groups or generation status. Other findings suggest that bilingual ability would increase earnings only for the Chinese group.

Immigrant earnings profiles in the presence of human capital investment: Measuring cohort and macro effects

We argue that when immigrant earnings are considered in the context of post-arrival human capital investment: cohort quality should be defined in terms of the present value of the whole earnings profile; and, an appropriate definition of “macro” effects is obtained using the earnings profile of the native born cohort entering the labor market at the same time as an immigrant cohort. We illustrate this by using Canadian immigrant earnings, where there were large cross-cohort earnings declines in the 1980s, 1990s and early 2000s. We find that changes affecting all new entrants play an important role in understanding immigrant earnings. In contrast, earlier approaches imply that “macro” events explain little of immigrant earnings patterns.

Corporate Earnings And Financings: An Analysis Of Cancelled Versus Completed Offerings

Testing the earnings downturn and overvaluation hypotheses, we examine the long-term behavior of earnings around cancelled offers of firm financings of straight debt, convertible debt, and common stock. Although we find evidence consistent with both hypotheses in our completed offerings, the earnings pattern around cancelled offerings is consistent with overvaluation rather than earnings downturn. We find an unexpected earnings drop following the cancellation, however, we find no evidence shareholders correctly anticipate the size of the earnings downturn.

Nonlinearities And Volatility Patterns In Corporate Earnings

<span>This paper explores the stochastic properties of the quarterly earnings per share series for industrials, railroads and utilities since 1935. Evidence of stochastic dependency suggests modeling them as a conditionally heteroskedastic process. Changes in earnings tentatively reject the random walk hypothesis since future returns can be predicted from past information. The conditional variance is found to be sensitive to market advances and positively correlated with the conditional mean since the risk premium is statistically significant. Finally, volatility persistence appears to be high in all series.</span>

Losses, Dividend Reductions, and Market Reaction Associated with Past Earnings and Dividends Patterns

This paper examines investors’ reactions to dividend reductions or omissions conditional on past earnings and dividend patterns for a sample of eighty-two U.S. firms that incurred an annual loss. We document that the market reaction for firms with long patterns of past earnings and dividend payouts is significantly more negative than for firms with less-established past earnings and dividends records. Our results can be explained by the following line of reasoning. First, consistent with DeAngelo, DeAngelo, and Skinner (1992) , a loss following a long stream of earnings and dividend payments represents an unreliable indicator of future earnings. Thus, established firms have higher loss reliability than less-established firms. Second, because current earnings and dividend policy are a substitute source of means of forecasting future earnings, lower loss reliability increases the information content of dividend reductions. Therefore, given the presence of a loss, the longer the stream of prior earnings and dividend payments, (1) the lower the loss reliability and (2) the more reliably dividend cuts are perceived as an indication that earnings difficulties will persist in the future.

Earnings Of Hispanic And Asian Immigrants: Are Hispanic Immigrants Discriminated Against?

The heterogeneity of immigrants raises a question as to whether there is a general pattern of earnings progress that applies to all immigrants. As there are many types of immigrants, earnings patterns among immigrant groups are not well known. To fill in this research gap, this paper investigates the role of various determinants in the earnings process of two major immigrant groups: Hispanic and Asian immigrants. If there is a gap between these two immigrant groups, could it be a result of different human capital characteristics or some other factors? According to empirical results based on the 1990 Census of Population 5 percent Public Use Microdata Sample (PUMS), the decomposition of the earnings difference between immigrant groups indicates that approximately 28 percent of the gap is unexplained by the observable labor market characteristics. Cottons modified version of the Oaxaca-Blinder procedure is used to decompose the earnings gap.

Immigrant Earnings Patterns In High Immigration States

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="mso-bidi-font-weight: bold; mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">This paper examines and measures the extent of wage convergence of immigrants to native-born workers.<span style="mso-spacerun: yes;">  </span>The focus is on a dimension of immigrant labor market assimilation that has been largely overlooked in this literature; particularly, how differences in local labor market wage-setting mechanisms affect the process of wage convergence.<span style="mso-spacerun: yes;">  </span>Recently, some have argued that immigrants arriving after the 1970s will possess inferior assimilation abilities relative to previous immigrant cohorts because they lack essential skills.<span style="mso-spacerun: yes;">  </span>This paper shows that wage convergence varies significantly between high-immigration states and that the wage-setting structure can be a significant factor in the assimilation process.<span style="mso-spacerun: yes;">  </span>The results also indicate that recent immigrants begin their process of assimilation from a position that is similar to previous immigrants and that if their human capital accumulation rates mirror those of previous cohorts, successful wage convergence will rest on the development of an equitable pay structure.</span></span></span></p>

The growth companies puzzle: can growth opportunities measures predict firm growth?

While numerous empirical studies include proxies for growth opportunities in their analyses, there is limited evidence as to the validity of the various growth proxies used. Based on a sample of 1942 firm-years for listed UK companies over the 1990–2004 period, we assess the performance of eight growth opportunities measures. Our results show that while all the growth measures show some ability to predict growth in company sales, total assets, or equity, there are substantial differences between the various models. In particular, Tobin's Q performs poorly while dividend-based measures generally perform best. However, none of the measures has any success in predicting earnings per share growth, even when controlling for mean reversion and other time-series patterns in earnings. We term this the ‘growth companies puzzle’. Growth companies do grow, but they do not grow in the key dimension (earnings) theory predicts. Whether the failure of ‘growth companies’ to deliver superior earnings growth is attributable to increased competition, poor investments, or behavioural biases, it is still a puzzle why growth companies on average fail to deliver superior earnings growth.

Do dividend changes predict the future profitability of firms?

AbstractMany previous studies have been conducted to test whether corporate dividend changes predict the future profitability of firms. While the debate continues, we assess the information content of dividends (ICD) hypothesis in the Korean market as it provides an interesting experimental setting for testing the hypothesis in the context of corporate governance. We find that it is difficult to support the ICD hypothesis if one accepts nonlinear patterns in earnings. However, when we divide the sample in terms of Chaebol vs. non‐Chaebol and high‐growth vs. low‐growth firms, we find that the ICD hypothesis becomes valid, especially for non‐Chaebol firms and for low‐growth firms. Therefore, we suggest that the validity of the ICD hypothesis may be dependent on firm characteristics such as the corporate governance structure and growth stage.

The Effect of Past Earnings and Dividend Patterns on the Information Content of Dividends When Earnings Are Reduced

This study pursues two objectives: first, to provide evidence on the information content of dividend policy, conditional on past earnings and dividend patterns prior to an annual earnings decline; second, to examine the effect of the magnitude of low earnings realizations on dividend policy when firms have more-or-less established dividend payouts. The information content of dividend policy for firms that incur earnings reductions following long patterns of positive earnings and dividends has been examined (DeAngelo et al., 1992, 1996; Charitou, 2000). No research has examined the association between the informativeness of dividend policy changes in the event of an earnings drop, relative to varying patterns of past earnings and dividends. Our dataset consists of 4,873 U.S. firm-year observations over the period 1986-2005. Our evidence supports the hypotheses that, among earnings-reducing or loss firms, longer patterns of past earnings and dividends: (a) strengthen the information conveyed by dividends regarding future earnings, and (b) enhance the role of the magnitude of low earnings realizations in explaining dividend policy decisions, in that earnings hold more information content that explains the likelihood of dividend cuts the longer the past earnings and dividend patterns. Both results stem from the stylized facts that managers aim to maintain consistency with respect to historic payout policy, being reluctant to proceed with dividend reductions, and that this reluctance is higher the more established is the historic payout policy.

Why Do Firms with High Idiosyncratic Volatility and High Trading Volume Volatility Have Low Returns?

Ang, Hodrick, Xing and Zhang (2006) document a negative relation between returns and idiosyncratic volatility (hereafter the AHXZ result). We show their result is significant and robust to various measures of idiosyncratic volatility and various return horizons after deleting penny stocks and controlling for January. Moreover, their result is not attributable to small firms. We examine whether the market misprices high idiosyncratic volatility stocks in a manner consistent with the effects of limits of arbitrage and information uncertainty. The results are supportive of this hypothesis. The AHXZ result exists only among stocks with low analyst coverage, and is strongest among low-coverage stocks with high returns over the prior three years. Earnings announcement returns are negative and significant for high idiosyncratic volatility stocks with low analyst coverage, but not those outside the low-coverage group. Outside of low-coverage stocks, the relation between returns and idiosyncratic volatility is insignificant or positive. Distinct patterns in earnings indicate that the AHXZ result arises because the market overestimates the persistence of earnings growth for low-coverage stocks with high idiosyncratic return volatility. We document a similar collection of results for stocks sorted on the volatility of share turnover, suggesting that the negative relation between returns and turnover volatility documented by Chordia, Subrahmanyam and Anshuman (2001) also reflects mispricing consistent with information uncertainty and limits of arbitrage.

Market Reaction to Patterns of Earnings

Market Reaction to Patterns of Earnings

Market Reaction to Patterns of Earnings

Market Reaction to Patterns of Earnings

Earnings Inequality and In-Work-Poverty

Earnings are one of the most relevant dimensions of job quality. They are the main reward within the employment relation, the one most valued by workers and the most multi-faceted instrument for achieving other goals. Very frequently, it is also closely associated with other objective and subjective dimensions of employment quality. Still, sociological and politics research only rarely consider the monetary components of employment quality.In the last two decades, different factors stemming from the process of globalization, the evolution of the economy, changes in the labour market and social protection institutions and policies have led to changes in the level and patterns of earnings and income inequality. This contribution does not intend to draw a detailed picture of the state of that research; it rather aims to provide a quick glance into the situation and the most recent long or medium-term wage trends in a comparative international and European perspective. It is divided into 6 sections. The first deals with our level of knowledge about the impact of economic globalization on earnings inequalities. Sections 2 and 3 are devoted to the dynamics and present situation of the incidence of low paid work and in-work poverty respectively. Section 4 reflects on the different social, labour market and tax policies that may potentially rescue people from low pay and in-work poverty. Section 5 evaluates existing data and indicators. Finally, section 6 includes some tentative proposals for future research.

Quarterly Earnings Patterns and Earnings Management*

This paper investigates whether the pattern of quarterly earnings changes provides a signal of earnings management. We identify firms for which the sign of (seasonal) earnings changes observed in interim quarters reverses in the fourth quarter. We hypothesize that a firm performing poorly in interim quarters may attempt to increase earnings of the fourth quarter to achieve a desired annual earnings target, while a firm performing well in interim quarters may attempt to decrease earnings of the fourth quarter to build reserves for the future. Our results show that reversal of earnings changes in the fourth quarter is a common phenomenon and its occurrence is greater than would be expected by chance. Other indicators of earnings management, such as the size and direction of discretionary accruals, reversals in subsequent accruals, the use of special items in the income statement, and adjustment of R&D spending, suggest that firms with earnings reversals are more likely to have managed earnings than industry and performance matched control firms. The capital market appears to attach lower credibility to earnings reported by the reversal samples. Our collective evidence leads us to suspect that fourth-quarter reversals on average reflect earnings management behavior. We recommend that analysts use earnings reversals as a heuristic to detect potential cases of earnings management in conjunction with other indicators, such as the magnitude of discretionary accruals. We further find that firms in the reversal samples significantly overlap with the sample of firms reporting small profits and small EPS increases. These results provide an interesting insight - that at least one-fourth of the sample of firms that meet or just beat earnings targets are attempting to smooth annual earnings by managing earnings downward in the fourth quarter.