Fundamental Investment Analysis

This paper compares the properties of dividend announcements and management earnings forecasts as predictors of earnings and firm value. First, the two predictors are compared on the basis of their ability to predict earnings. Then the information they convey about firm value is assessed by comparison of the performance of investment strategies based on values of the two predictors. Finally, the effects of dividend announcements on stock prices are considered.

Evidence is given in this paper which indicates that corporate insiders time their trades in their firms' stock relative to the date of the disclosure of their forecasts of annual earnings. Further, insiders earn abnormal returns to their joint trading and information dissemination activities, and the paper provides measures of these returns.

Reprinted in Advances in Financial Economics: Volume I (Theory), Bhattacharya and Constantinides (editors), Roman and Allenhead publishers 1986.

Over the years, there has developed a fairly substantial body of research on the time series of earnings. As a whole, this literature concludes that changes in (annual) accounting earnings are unpredictable, that is, earnings follow a "random walk." Based on this result, some inferences of economic substance (policy) have been claimed. In this paper we reconsider empirical issues which, at least to some extent, have been obscured by this conclusion.

This paper assesses the ability of markets to convey information about firms to investors. The present system of disclosure rules has been restricted to historical data. Recently there have been proposals to bring predictive data—in particular, earnings forecasts—under the scope of a disclosure rule. Forecasts of future earnings are, at present, being provided by many corporate managements.

This paper is presented within the context of two streams of research which can be identified in the current literature of empirical accounting research. Both of these research areas deal with changes in accounting methods. The first deals with the motivation for changes in accounting methods, and the second area, attempts are made to discover the consequences of accounting changes in terms of the reaction of capital markets to the output of the accounting process.

This paper deals primarily with forecast disclosure rules, a topic that has attracted the attention of both the Securities and Exchange Commission and the accounting profession. We consider two fundamental and related aspects of such a rule: 1) the extent to which the type of information to be disclosed conveys information pertinent to valuing firms; and 2) the extent to which a rule requiring public forecast disclosure is consistent with Pareto optimal allocations of resources.

The purpose of this paper is to discover a theoretically sound model of asset valuation by reference to the basic underlying concept of Financial Position. It will be shown that several models of asset valuation can be developed from alternative assumptions or definitions of Financial Position, but that the application of certain metaphysical constraints brings about the rejection of some of these models.

In this paper, I estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships.