Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

Leverage, Volatile Future Earnings Growth and Expected Stock Returns

We provide theory and evidence to complement Choi's [RFS, 2013] important new insights on the returns to equity in `value' firms. We show that higher future earnings growth ameliorates the value-reducing effect of leverage and, because the market for earnings is incomplete, reduces the earnings-risk sensitivity of the default option. Ceteris paribus, a levered firm with low (high) earnings growth is more sensitive to the first (second) of these effects thus generating higher (lower) expected returns. We demonstrate this by modeling equity as an Asian-style call option on net earnings and find significant empirical support for our hypotheses.

Future Earnings Growth Volatility and the Value Premium

The value premium is well established in empirical asset pricing, but to date there is little understanding as to its fundamental drivers. We use a stochastic earnings valuation model to establish a direct link between the volatility of future earnings growth and firm value. We illustrate that risky earnings growth affects growth and value firms differently. We provide empirical evidence that the volatility of future earnings growth is a significant determinant of the value premium. Using data on individual firms and characteristic-sorted test portfolios, we also find that earnings growth volatility is significant in explaining the cross-sectional variation of stock returns. Our findings imply that the value premium is the rational consequence of accounting for risky earnings growth in the firm valuation process.

'Abnormal vertical growth' : A disorder threatening the viability of the Australian macadamia industry

'Abnormal vertical growth' (AVG) was recognised in Australia as a dysfunction of macadamia (Macadamia spp.) in the mid-1990s. Affected trees displayed unusually erect branching, and poor flowering and yield. Since 2002, the commercial significance of AVG, its cause, and strategies to alleviate its affects, has been studied. The cause is still unknown, and AVG remains a serious threat to orchard viability. AVG affects both commercial and urban macadamia. It occurs predominantly in the warmer-drier production regions of Queensland and New South Wales. An estimated 100,000 orchard trees are affected, equating to an annual loss of $ 10.5 M. In orchards, AVG occurs as aggregations of affected trees, affected tree number can increase by 4.5% per year, and yield reduction can exceed 30%. The more upright cultivars 'HAES 344' and '741' are highly susceptible, while the more spreading cultivars 'A4', 'A16' and 'A268' show tolerance. Incidence is higher (p<0.05) in soils of high permeability and good drainage. No soil chemical anomaly has been found. Fine root dry weight of AVG trees (0-15 cm depth) was found lower (p<0.05) than non-AVG. Next generation sequencing has led to the discovery of a new Bacillus sp. and a bipartite Geminivirus, which may have a role in the disease. Trunk cinctures will increase (p<0.05) yield of moderately affected trees. Further research is needed to clarify whether a pathogen is the cause, the role of soil moisture in AVG, and develop a varietal solution.

A comparative analysis of accounting-based valuation models

We empirically compare the reliability of the dividend (DIV) model, the residual income valuation (CT, GLS) model, and the abnormal earnings growth (OJ) model. We find that valuation estimates from the OJ model are generally more reliable than those from the other three models, because the residual income valuation model anchored by book value gets off to a poor start when compared with the OJ model led by capitalized next-year earnings. We adopt a 34-year sample covering from 1985 to 2013 to compare the reliability of valuation estimates via their means of absolute pricing errors (MAPE) and corresponding t statistics. We further use the switching regression of Barrios and Blanco to show that the average probability of OJ valuation estimates is greater in explaining stock prices than the DIV, CT, and GLS models. In addition, our finding that the OJ model yields more reliable estimates is robust to analysts-based and model-based earnings measures.

Were regulatory changes in reporting "abnormal items" justified? : evidence of intra-period classificatory earnings management practices in Australia

Purpose Managers generally have discretion in determining how components of earnings are presented in financial statements in distinguishing between ‘normal’ earnings and items classified as unusual, special, significant, exceptional or abnormal. Prior research has found that such intra-period classificatory choice is used as a form of earnings management. Prior to 2001, Australian accounting standards mandated that unusually large items of revenue and expense be classified as ‘abnormal items’ for financial reporting, but this classification was removed from accounting standards from 2001. This move by the regulators was partly in response to concerns that the abnormal classification was being used opportunistically to manage reported pre-abnormal earnings. This study extends the earnings management literature by examining the reporting of abnormal items for evidence of intra-period classificatory earnings management in the unique Australian setting. Design/methodology/approach This study investigates associations between reporting of abnormal items and incentives in the form of analyst following and the earnings benchmarks of analysts’ forecasts, earnings levels, and earnings changes, for a sample of Australian top-500 firms for the seven-year period from 1994 to 2000. Findings The findings suggest there are systematic differences between firms reporting abnormal items and those with no abnormal items. Results show evidence that, on average, firms shifted expense items from pre-abnormal earnings to bottom line net income through reclassification as abnormal losses. Originality/value These findings suggest that the standard setters were justified in removing the ‘abnormal’ classification from the accounting standard. However, it cannot be assumed that all firms acted opportunistically in the classification of items as abnormal. With the removal of the standardised classification of items outside normal operations as ‘abnormal’, firms lost the opportunity to use such disclosures as a signalling device, with the consequential effect of limiting the scope of effectively communicating information about the nature of items presented in financial reports.

Determinants and market impact of seasoned equity offerings : the case of A-REITs

The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000 - 2008 and stock market reaction to the offerings. The findings reveal that highly leveraged A-REITs with variable earnings are less likely to issue seasoned equity offerings. Inconsistent results for structure and type of properties held by the A-REIT do not allow for inference to be drawn. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Furthermore, market reaction differences to announcements of SEOs for the pre-global financial crisis (GFC) (2000-2006) and GFC eras (2007-2008) are noted with GFC era shareholders incurring larger abnormal return losses at 1.13% in comparison to the pre-GFC era shareholder loss of 0.34% on the SEO announcement day. Cross-sectional regressions show that the issued amount, leverage and profitability are significant factors affecting abnormal returns. Growth opportunities, tangibility, operating risk, size of A-REIT and other variables capturing A-REIT structure and property types held do not have an impact on abnormal returns

Effect of recrystallization and grain growth on the mechanical properties of an extruded AZ21 Mg alloy

An experimental investigation into the effect of microstructural changes, which occur during post-extrusion annealing of a Mg based AZ21 alloy, on tensile and fatigue properties is conducted. Mechanical properties in the as-cast, as-extruded, and microstructural states that correspond to recovery, recrystallization and grain growth stages of annealing are compared. Results show that these microstructural changes do not alter the yield strength of the alloy markedly whereas significant differences were noted in the ultimate tensile strength as well as ductility. The initiation of abnormal grain growth (or secondary recrystallization) renders the tensile stress-strain response elastic perfectly plastic and results in a large drop in ductility, as high as similar to 60% during intermediate stages of abnormal grain growth, vis-A-vis the ductility of the as-extruded alloy. While the fatigue performance of all the wrought alloys is far superior to as expected, abnormal grain growth leads to a marked decrease in the endurance that of the as-cast alloy, limit. Possible microscopic origins of these are discussed. (C) 2009 Elsevier B.V. All rights reserved.

International evidence on the payout ratio, earnings, dividends and returns

ap Gwilym, Owain, et al., 'International evidence on the payout ratio, earnings, dividends and returns', Financial Analysts Journal (2006) 62(1) pp.36-53 RAE2008

Modelos de presupuestación de capital en finanzas corporativas y utilidad de los mismos

La siguiente investigación describe una aproximación teórica al tema de los modelos de presupuestación de capital, el objetivo fundamental se basa en comprender su enfoque e importancia al momento de tomar decisiones de inversión por parte de los directores de una empresa, así como de prever los efectos de esta en un futuro. Al respecto, y sobre la base de que los modelos de presupuestación de capital son herramientas para analizar posibles erogaciones de capital por parte de una empresa, es necesario para efectos del presente proyecto de investigación, definir sus diferentes modelos desde lo teórico y metodológico, explicando los diferentes conceptos relacionados con el tema. Así mismo, se explican algunos de los indicadores financieros utilizados en las compañías para medir y estimar la “salud financiera” de la empresa, además de puntualizar su impacto en la perdurabilidad de las entidades, lo cual permite dar una visión más general sobre la importancia que trasciende de los indicadores financieros, generando un impacto positivo en la evolución o crecimiento de la organización. En complemento, la investigación aborda la presupuestación de capital de manera particular aplicado en la gestión empresarial, sean estas privadas o públicas (estatal y gubernamental). En este sentido, se abordan conceptos elaborados por diferentes académicos en los que se exponen algunas aproximaciones respecto al posible mejoramiento de la presupuestación para los sectores a los que pertenecen determinadas entidades. Finalmente, se presenta de manera explícita las conclusiones que surgieron a lo largo de la construcción del documento de investigación, con el fin de dar cumplimiento concreto al objetivo general del trabajo, el cual constituye una respuesta a la pregunta de investigación que se enunciará en el desarrollo del documento.

Dividend policy choice : do earnings or investment opportunities matter?

The aim of this paper is to analyse the influence of a company's level of earnings and growth opportunities in determining the dividend policy choice of Malaysian-listed firms. The analysis is based on a sample of 136 firms listed on the Bursa Malaysia Index over a period of six years, from 1990 to 1996. The evidence suggests that the payers are more profitable than non-payers. Likewise, investment opportunity, which is measured by (∂At /At-1) and (Vt /At), differed for both payers and non-payers. The regression estimates from Logit model suggest that the average coefficient for EATA is a significant determinant for firm's dividend policy choice in Malaysia. This is consistent with the supposition that profitable firms are more likely to pay dividends than less profitable firms. Although investment opportunities, the firm's size and leverage were not found to be statistically significant, they provided some explanation for the dividend policy choice.

Plasma vascular endothelial growth factor, angiopoietin-2, and soluble angiopoietin receptor tie-2 in diabetic retinopathy:effects of laser photocoagulation and angiotensin receptor blockade

Background: Proliferative diabetic retinopathy (PDR) may be a response to abnormal angiogenic growth factors such as vascular endothelial growth factor (VEGF), angiopoietin-2 (Ang-2), and the soluble angiopoietin receptor tie-2. The authors hypothesised the following: (a) there are differences in plasma levels of these growth factors in different grades of diabetic retinopathy; and (b) that the effects of intervention with panretinal laser photocoagulation (PRP) for PDR, and angiotensin receptor blockade (using eprosartan) for patients with other grades of diabetic retinopathy will be to reduce levels of the growth factors. Methods: Cross sectional and interventional study (using PRP and eprosartan) in diabetic patients. VEGF, Ang-2, and tie-2 were measured by ELISA. Results: VEGF (p<0.001) and Ang-2 levels (p<0.001) were significantly higher in 93 diabetic patients compared to 20 healthy controls, with the highest levels in grade 2 and grade 3 diabetic retinopathy (p<0.05). Tie-2 was lower in diabetics compared to controls (p = 0.008), with no significant differences between the diabetic subgroups. Overall, VEGF significantly correlated with Ang-2 (p<0.001) and tie-2 (p = 0.004) but the correlation between Ang-2 and tie-2 levels was not significant (p = 0.065). Among diabetic patients only, VEGF levels were significantly correlated with Ang-2 (p<0.001) and tie-2 (p<0.001); the correlation between Ang-2 and tie-2 levels was also significant (p<0.001). There were no statistically significant effects of laser photocoagulation on plasma VEGF, Ang-2, and tie-2 in the 19 patients with PDR, or any effects of eprosartan in the 28 patients with non-proliferative diabetic retinopathy. Conclusion: Increased plasma levels of VEGF and Ang-2, as well as lower soluble tie-2, were found in diabetic patients. The highest VEGF and Ang-2 levels were seen among patients with pre-proliferative and proliferative retinopathy, but there was no relation of tie-2 to the severity of retinopathy. As the majority of previous research into Ang-2 and tie-2 has been in relation to angiogenesis and malignancy, the present study would suggest that Ang-2 and tie-2 may be used as potential indices of angiogenesis in diabetes mellitus (in addition to VEGF) and may help elucidate the role of the angiopoietin/tie-2 system in this condition.

Influence of processing temperature on microstructure and microhardness of copper subjected to high-pressure torsion

Cu samples were subjected to high-pressure torsion (HPT) with up to 6 turns at room temperature (RT) and liquid nitrogen temperature (LNT), respectively. The effects of temperature on grain refinement and microhardness variation were investigated. For the samples after HPT processing at RT, the grain size reduced from 43 mu m to 265 nm, and the Vickers microhardness increased from HV52 to HV140. However, for the samples after HPT processing at LNT, the value of microhardness reached its maximum of HV150 near the center of the sample and it decreased to HV80 at the periphery region. Microstructure observations revealed that HPT straining at LNT induced lamellar structures with thickness less than 100 nm appearing near the central region of the sample, but further deformation induced an inhomogeneous distribution of grain sizes, with submicrometer-sized grains embedded inside micrometer-sized grains. The submicrometer-sized grains with high dislocation density indicated their nonequilibrium nature. On the contrary, the micrometer-sized grains were nearly free of dislocation, without obvious deformation trace remaining in them. These images demonstrated that the appearance of micrometer-sized grains is the result of abnormal grain growth of the deformed fine grains.

Preferences for a third-trimester ultrasound scan in a low-risk obstetric population: a discrete choice experiment

Objective: Establish maternal preferences for a third-trimester ultrasound scan in a healthy, low-risk pregnant population.

Design: Cross-sectional study incorporating a discrete choice experiment.

Setting: A large, urban maternity hospital in Northern Ireland.

Participants: One hundred and forty-six women in their second trimester of pregnancy.

Methods: A discrete choice experiment was designed to elicit preferences for four attributes of a third-trimester ultrasound scan: health-care professional conducting the scan, detection rate for abnormal foetal growth, provision of non-medical information, cost. Additional data collected included age, marital status, socio-economic status, obstetric history, pregnancy-specific stress levels, perceived health and whether pregnancy was planned. Analysis was undertaken using a mixed logit model with interaction effects.

Main outcome measures: Women's preferences for, and trade-offs between, the attributes of a hypothetical scan and indirect willingness-to-pay estimates.

Results: Women had significant positive preference for higher rate of detection, lower cost and provision of non-medical information, with no significant value placed on scan operator. Interaction effects revealed subgroups that valued the scan most: women experiencing their first pregnancy, women reporting higher levels of stress, an adverse obstetric history and older women.

Conclusions: Women were able to trade on aspects of care and place relative importance on clinical, non-clinical outcomes and processes of service delivery, thus highlighting the potential of using health utilities in the development of services from a clinical, economic and social perspective. Specifically, maternal preferences exhibited provide valuable information for designing a randomized trial of effectiveness and insight for clinical and policy decision makers to inform woman-centred care.

Isolation and characterization of a chitinase-secreting mutant of mortierella pusilla with altered interaction with the mycoparasite piptocephalis virginiana

Mortierella pusilla is a susceptible host and supports good growth of the mycoparasite, Piptocephalis virginiana. Uninucleate spores of M. pusilla were sUbjected to N-methyl-N'-nitro-nitrosoguanidine (MNNG). To attain a high mutation frequency , a 1o-minute exposure to 10 mg/ml MNNG was used and lead to the survival of about 10 % of the spores. The exposed spores then were plated on chitin or milk plates. Approximately 30,000 colonies were examined after mutagenesis on the screening media. A strain, MUT23 , with abnormal slow growth morphology was found to delay parasitism by £. virginiana. The particular morphology was not due to auxotrophy, because this strain displayed normal hyphae when glucose was used as the sole carbon source. One interesting phenomenon was that MUT23 showed an extensive clearing zone around the colony on colloidal chitin agar after 20-25 d. On the same conditions, wild type strain did not show this phenotype. In addition, the MUT23 strain produced the same normal hypha as the wild type strain when it was grown on colloidal chitin agar. The MUT23 was also able to produce more spores on colloidal chitin agar than on malt-yeast extract and minimal media. The parasite germ tubes formed appressoria at the point of contact on the cell surface of wild type and MUT23 grown for 6 days cell surface but not on the cel surface of MUT23 grown for 2 days. Thus, interaction between MUT23 strain and the mycoparasite was dependent on MUT23 age. The effect of MUT23 filtrate on germination of the parasite was tested. Lysis of germinated spores of the parasite were observed in concentrated MUT23 filtered solution. MUT23 was compared to the wild type strain for their chitinase production in sUbmerged culture. The chitinase isozymes of both wild type and MUT23 were shown by immunoblotting. Eight distinct chitinase molecules were detected. MUT23 showed markedly higher chitinase activity than the wild type cultured in chitin-containing medium. Maximum chitinase activities of MUT23 were 13.5 fold higher at 20 day of the culture then that of wild type.