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Using only information on the degree of concavity of demand and observable structural variables such as the market shares of firms, a necessary and sufficient condition for a merger to increase welfare is derived. On the profitability side, we obtain that when market size decreases merger profitability increases.

This article uses a quadratic-loss utility function to model corporate earnings forecasts, using trade off bias to improve forecast accuracy and management access. Results suggest that predictable and positive bias may be a rational part of optimal earnings forecasts.

Research suggests that corporations with a history of increasing earnings can have better price-earnings multiples. The authors discover that increasing earnings are positively correlated with growth and are negatively correlated with risk.

The authors discuss the relationship between corporate earnings and valuation of NYSE common stocks. Topics include historical changes of accounting standards, creation of the Securities and Exchange Commission, and differences between the Accounting Principles Board and the Financial Accounting Standards Board.

A study was conducted to examine the evidence of earnings management which applies to regulatory-imposed wealth transfers over business cycles. A covariance model was utilized to examine the discretionary accruals of firms which were investigated due to antitrust violations. Results suggested that the said companies chose income-decreasing accruals to reduce political costs which resulted from the investigations being conducted on antitrust violations.

A study was conducted to evaluate the hypothesis that financial statement information can be effectively used in predicting abnormal stock returns in the UK. Pr trading and Prob trading approaches were utilized to examine the relevance of financial statement information in predicting stock returns. Results revealed that investor may use summary measure of financial statement information to earn abnormal returns but they may not be useful in predicting future stock returns.

A study was conducted to determine the relationships of companies' information environment and return-earning relations and their importance with respect to price anticipation of earnings. Innovative return-earnings models were utilized in identifying the variables of price anticipation of earnings which include breadth of trading, capital issues and volatility of returns. Results suggested that trading and return volatility were irrelevant to the tendency of prices to lead earnings.

Low profitability was prevalent among many Polish enterprises in the 1980s. A study was conducted between 1988 and 1993 to examine thousands of Polish corporations for the purpose of analyzing consequences of eliminating unprofitable output. The elimination of loss-making activities had several consequences. These include the emergence of unemployment in countries which formerly experienced full employment and a grave fiscal crisis following the introduction of stabilization programs. However, elimination of loss-making activities also substantially contributed to the reduction of the corporations' deficits., Transition in Eastern Europe implies a substantial systemic change that is bound to entail large social and economic cost. For this reason political and social considerations are an important constraint [...]

This study explores relationships of women in management positions with firm financial performance. Utilizing the resource-based theory of competitive advantage, as well as stakeholder and diversity arguments, we hypothesize that firms employing greater percentages of women managers at the general management, top management, and board of director levels will experience relatively better financial performance. Examining data from the Wall Street Journal for 200 large firms, we find positive relationships between the firm's total percentage of women managers and ROS, ROA, ROI, and ROE. High percentages of women top managers and board members did not predict performance., Modern business is clearly conducted in uncertain contexts. Today's firms are faced with ever increasing international competitive pressures, unstable capricious markets, new and complex technologies, and with dramatic changes in [...]

The degree of capital expenditure affects the profitability performance of Fortune 500 industrial firms. Companies belonging to top 50% of Fortune 500 were able to achieve increases in operating profits between 1981 to 1990 due to increased capital investment. On the other hand, companies belonging to the bottom half of Fortune 500 recorded declines in profitability brought about by reduction in the rate of capital expenditure.

A comparative analysis was done between the methodologies used in a recent study on incremental information content of accruals and the approaches used in previous studies. The methodologies used in the recent study were interesting although they posed advantages and disadvantages in understanding incremental information of accruals. Furthermore, the findings of the recent study could be the springboard for further analyses on incremental information beyond earnings and other variables of corporate funds and cash flows.

The Garman-Ohlson structural system model presents a relatively simplistic extrapolation and adding of only three accounting variable, thus diminishing efficiency as a valuation model. It offers a generalization of the one dimensional dividend growth model as well as valuable insights regarding the roles of dividend yield, earning yield, book value and market value in ascertaining corporate profits.

Analog Devices Inc.'s financial performance slumped despite the success of its Total Quality Management program. The program had led to improved yield, reduced cycle time and significantly lesser product defects. Analog's case strengthens recent evidence that the connection between quality improvement and financial results is weak. Analog's experience is paradoxical since financial results did not improve after the TQM program had been considered a success. Data from a detailed simulation model of Analog showed that improvements programs such as TQM can pose a tradeoff between short and long run effects. Although TQM can boost productivity, quality and cost effectiveness in the long run, it may also interact with accounting systems and organizational operations to create excess capacity, financial stress and pressure for layoffs.

Previous empirical studies on cyclical profit squeeze (CPS) contain methodological flaws concerning problematic accounting decompositions, misspecifications of CPS and secular profit squeeze relations and approach to anomalies. These flaws are addressed through a proposed estimation framework of the importance of CPS. The alternative estimates are based on the approaches used in previous studies and on structural time series models. The framework is effective in justifying the relevance of CPS despite the influence of secular trends.

Event study methodologies using accounting-based measures of operating performance are evaluated. The study examines three choices that have to be made in designing a test: selecting from among five measures of operating performance, comparing two statistical tests, and comparing nine models of expected operating performance. Results indicate that the more popular research designs generate misspecified test statistics when the performance of the sample companies is weak or strong.

Companies that diversify their products through divisionalization contribute more to social welfare than their profit-making policy. Companies form divisions in order to exhaust the profit-making capabilities of each division. However, a company can also obtain maximum profits by selling franchises or by ultimately selling each division to independent buyers. In both cases, these units are prohibited from further dividing to force them to compete in the market.

This articles presents an empirical test of the differential impact of the separate facets of quality on profitability of businesses in industrial capital goods. Citing evidence from three decades of theoretical work in the domain of product quality, the authors propose that quality should be construed not as an unidimensional concept as has generally been done in the literature, but as a multidimensional construct. Drawing from past theoretical work, the authors adopt and advance a perspective of quality that is managerially actionable and propose a set of hypotheses relating the different dimensions of quality to company profitability. The contingent nature of the various facets of quality and company profitability are discussed and the results of empirical tests of hypotheses on data from the PIMS data base are described. Finally, the research and managerial implications of the findings are discussed. The product dimension of quality was found to be the most important for pioneering strategic business units and those in the early stages of the product life cycle (PLC), while image quality was most important for pioneers and those in the late stages of the PLC. The service dimension of quality was most important for nonpioneers and late PLC stages., In recent years, concerns related to quality of products and services have received urgent and prolific attention in the business press (e.g., Byrne, 1994; Calonius, 1991; Jacob, 1993; Port, 1991, [...]

A study examines a case in which earnings response coefficients (ERCs) show signs contrary to that which are usually predicted and empirically observed. The importance of investigating negative earnings response coefficients lies in the ability of such a study to show the potential extent of the cross-sectional variances in ERCs and to emphasize the significance of informational interactions in explaining the link between accounting earnings and firm value.

The differential and incremental information provided by components of unexpected earnings was analyzed. Results showed that the permanent component has a greater effect on excess returns over a holding period of three days around earnings announcements than the temporary component. Analysis of the cross-sectional differences in the effects of temporary components revealed that such components bring about lower stock market reaction in manager-controlled firms.

A method for determining the earliest point from which profits should be recognized under long-term contracts was proposed. The method developed is based on a statistical theory and is compatible with established accounting principles. It is aimed at determining the standard deviation of estimated costs, calculating the probability that a cost deviation will nullify expected profits and evaluating critical probability.

Inaccurate estimates of the profitability of takeover attempts are often the result of the failure of bidding firms to consider the effects of merger proposals or tender offers on both their and their target firms' profitability. The profitability of the bidding firm may be reduced if it makes an unsuccessful takeover attempt. On the other hand, the target firm's profitability may increase as a result of an unsuccessful takeover bid. The increase or reduction in profitability depends on the firms' relative profitability prior to the takeover attempt.

Vernon Jordan, co-head of the Clinton transition team, sits on the board of directors of some of America's largest corporations. His status as a Washington insider is probably the reason he gets these jobs, but his performance is questionable. The companies that Jordan serves as director for have been some of the worst-run in the nation during his membership on their respective boards. Executives at these companies are grossly over-paid and Jordan sits on the compensation committee for many of them. His law firm also enlists these companies as clients, increasing the opportunity for conflict of interests on Jordan's part.

We conduct exploratory data analysis on the economic determinants of quarterly earnings data. After surveying the industrial organization literature, we selected firm-size, product-type and barriers-to-entry as independent variables useful in explaining autocorrelation in quarterly earnings and sales. We perform cross-sectional regression analysis on a sample of 364 calendar year-end, New York Stock Exchange firms. As our dependent variable, we employed both seasonal and non-seasonal lags of the levels and first differences of the sample autocorrelation functions (SACF) of quarterly earnings and sales data. Our results support a pervasive impact of firm-size on the levels of the SACF. This outcome is consistent with the notion that larger firms exhibit more stable, higher pronounced levels of serial correlation in their quarterly earnings numbers than smaller firms. Results for the other economic variables were more contextual, depending on whether we used the full sample or a subgroup and on whether the data were differenced. Stronger results on the product-type and barriers-to-entry variables were documented for the seasonal firm subgroup at seasonal lags. This result is suggestive of an economic rationale for the seasonal behavior of quarterly earnings and sales data. (Reprinted by permission of the publisher.)

The relationship betwen sales to government on the profitability of firms is examined using industry price-cost margin data. Results indicate that while government sales have little impact on large firms, small firms benefit significantly from such sales. The effect holds true for all industries and is independent of the market structure. The findings suggest that government spending is large enough to benefit small but not large firms, and that government efforts to redistribute income from the general taxpayer to the small businesses are successful.

Factors influencing sustained intraindustry profit differentials, also referred to as mobility barriers, across various industries were identified using a new PIMS research data base. Information on the profitability of competing business entities and the factors thought to contribute to the observed profit differentials were analyzed. Results of the study suggest that factors related to differentiation are more responsible for intraindustry profit differentials than factors associated with cost.

The notion of a free market does not exist for health care. For-profit hospitals, compared to nonprofit facilities, have been consistently shown to provide higher-priced and lower-quality care. For-profit hospitals largely increase profits rather than decrease costs, and their overall higher costs are primarily due to administration, executive salaries, and other forms of overhead. Medical consumers are unable to assess the quality of health care services, compare facilities, or take their purchase dollars to alternate providers. In the absence of a competitive market, the taxpayers simply pay more money without getting better care.