Critical Writing (debating cultural idea) Essay

Critical Writing (debating cultural idea) - Essay Example Most traditional cultures have strong attachments to certain beliefs that define accepted moral conduct and virtues. For instance, the case of the Chinese culture under consideration, the author of â€Å"No Name Woman†, Maxine Hong Kingston discloses that a number of customs seem impossible in the United States remain sound and commonly acceptable in China (Kingston, 1976). The traditional China regarded women as low-level residents in the society. The women had no chance of making an opinion that can define either social-economical or political fate of a society. The women were required to follow and value the doubt of the customs. In the case under consideration, the Chinese woman who committed suicide was never counted as one of the children. The culture did not allow even mentioning that, the victim was part of the bereaved family. This is an assurance that had no place in democracies such as the US, which appreciated a better culture (Kingston, 1976). The author Chinese-A merican immigrant finds it difficult to accommodate the US culture, with her Chinese mind. Equally, the case indicates that, the author’s aunt, committed adultery when her husband had travelled to America. According to the Chinese culture, the woman acted against the Chinese norms on social and family life, which called for stoning, but instead she was sent back to her parents. This indicates the strength of the Chinese customs, which makes the author difficult to take in the American culture (Kingston, 1976). These acts created a cultural conflict between members of the family who believed that a taboo should not be broken. This resulted to the woman considered an outsider, who could not be allowed to be one of the family members. The author of the case study expresses a cultural conflict on these acts. The author feels that the Chinese culture is too ancient in comparison with the American one. The sees the acts of the villagers on the home house as

Genres Of Literature Essay Example for Free

Genres Of Literature Essay Genres of literature are important to learn about. The two main categories separating the different genres of literature are fiction and nonfiction. There are several genres of literature that fall under the nonfiction category. Nonfiction sits in direct opposition to fiction. Examples from both the fiction and nonfiction genres of literature are explained in detail below. This detailed genres of literature list is a great resource to share with any scholars. Types of Nonfiction: Narrative Nonfiction is information based on fact that is presented in a format which tells a story. Essays are a short literary composition that reflects the author’s outlook or point. A short literary composition on a particular theme or subject, usually in prose and generally analytic, speculative, or interpretative. A Biography is a written account of another person’s life. An Autobiography gives the history of a person’s life, written or told by that person. Often written in Narrative form of their person’s life. Speech is the faculty or power of speaking; oral communication; ability to express one’s thoughts and emotions by speech, sounds, and gesture. Read more:  How to write a reflection essay. Generally delivered in the form of an address or discourse. Finally there is the general genre of Nonfiction. This is Informational text dealing with an actual, real-life subject. This genre of literature offers opinions or conjectures on facts and reality. This includes biographies, history, essays, speech, and narrative nonfiction. Nonfiction opposes fiction and is distinguished from those fiction genres of literature like poetry and drama which is the next section we will discuss. Genres of Fiction: Drama is the genre of literature that’s subject for compositions is dramatic art in the way it is represented. This genre is stories composed in verse or prose, usually for theatrical performance, where conflicts and emotion are expressed through dialogue and action. Poetry is verse and rhythmic writing with imagery that evokes an emotional response from the reader. The art of poetry is rhythmical in composition, written or spoken. This genre of literature is for exciting pleasure by beautiful, imaginative, or elevated thoughts. Fantasy is the forming of mental images with strange or other worldly settings or characters; fiction which invites suspension of reality. Humor is the faculty of perceiving what is amusing or comical. Fiction full of fun, fancy, and excitement which meant to entertain. This genre of literature can actually be seen and contained within all genres. A Fable is a story about supernatural or extraordinary people Usually in the form of narration that demonstrates a useful truth. In Fables, animals often speak as humans that are legendary and supernatural tales. Fairy Tales or wonder tales are a kind of folktale or fable. Sometimes the stories are about fairies or other magical creatures, usually for children. Science Fiction is a story based on impact of potential science, either actual or  imagined. Science fiction is one of the genres of literature that is set in the future or on other planets. Short Story is fiction of such briefness that is not able to support any subplots. Realistic Fiction is a story that can actually happen and is true to real life. Folklore are songs, stories, myths, and proverbs of a person of â€Å"folk† that was handed down by word of mouth. Folklore is a genre of literature that is widely held, but false and based on unsubstantiated beliefs. Historical Fiction is a story with fictional characters and events in a historical setting. Horror is an overwhelming and painful feeling caused by literature that is frightfully shocking, terrifying, or revolting. Fiction in which events evoke a feeling of dread in both the characters and the reader. A Tall Tale is a humorous story with blatant exaggerations, swaggering heroes who do the impossible with an here of nonchalance. Legend is a story that sometimes of a national or folk hero. Legend is based on fact but also includes imaginative material. Mystery is a genre of fiction that deals with the solution of a crime or the unraveling of secrets. Anything that is kept secret or remains unexplained or unknown. Mythology is a type of legend or traditional narrative. This is often based in part on historical events, that reveals human behavior and natural phenomena by its symbolism; often pertaining to the actions of the gods. A body of myths, as that of a particular people or that relating to a particular person. Fiction in Verse is full-length novels with plot, subplots, themes, with major and minor characters. Fiction of verse is one of the genres of literature in which the narrative is usually presented in blank verse form. The genre of Fiction can be defined as narrative literary works whose content is  produced by the imagination and is not necessarily based on fact. In fiction something is feigned, invented, or imagined; a made-up story. Basic Parts of Essay Introductory Paragraph The introductory paragraph accomplishes three purposes: it captures the reader’s interest, it suggests the importance of the essay’s topic, and it ends with a thesis sentence. Often, the thesis sentence states a claim that consists of two or more related points. For example, a thesis might read: A college essay has an introductory paragraph, several body paragraphs, and a concluding  paragraph. You are telling the reader what you think are the most important points which need to be addressed in your essay. For this reason, you need to relate the introduction directly to the question or topic. A strong thesis is essential to a good essay, as each paragraph of your essay should be related back to your thesis or else deleted. Thus, the thesis establishes the key foundation for your essay. A strong thesis not only states an idea, but also uses solid examples to back it up. A weak thesis might be: Wikipedia is a powerful resource in many ways. As an alternative, a strong thesis for the same topic would be: Wikipedia is a powerful resource because it allows users with knowledge in a specific area toshare their knowledge, because it allows users to quickly find information about a vast array of topics, and because studies have confirmed that it is as accurate as any other encyclopedia. Then, you could separate your body paragraphs into three sections: one explaining the open-source nature of the project, one explaining the variety and depth of information, and a final one using studies to confirm that Wikipedia is indeed as accurate as other encyclopedias. Tips  Often, writing an introductory paragraph is the most difficult part of writing an essay. Facing a blank page can be daunting. Here are some suggestions for getting started. First, determine the context in which you want to place your topic. In other words, identify an overarching category in which you would place your topic, and then introduce your topic as a case-in-point. For example, if you are writing about dogs, you may begin by speaking about friends, dogs being an example of a very good friend. Alternatively, you can begin with a sentence on selective breeding, dogs being an example of extensive selective breeding. You can also begin with a sentence on means of protection, dogs being an example of a good way to stay safe. The context is the starting point for your introductory paragraph. The topic or thesis sentence is the ending point. Once the starting point and ending point are determined, it will be much easier to connect these points with the narrative of the opening paragraph. A good thesis statement, for example, if you are writing about dogs being very good friends, you could put: A dog is an example of a very good friend because X, Y, and Z. Here, X, Y, and Z would be the topics explained in your body paragraphs. In the format of one such instance, X would be the topic of the second paragraph, Y would be the topic of the third paragraph, and Z would be the topic of the fourth paragraph, followed by a conclusion, in which you would summarize the thesis statement. Example As we travel through our lives, we will identify many people as friends. In truth, most of these individuals are simply acquaintances. They will enter and depart from our existences as matters of mutual convenience. True friends will be there for you always. There is no friend truer than a dog. Identifying a context can help shape the topic or thesis. Here, the writer decided to write about dogs. Then, the writer selected friends as the context, dogs being good examples of friends. This shaped the topic and narrowed the focus to dogs as friends. This would make writing the remainder of the essay much easier because it allows the writer to focus on aspects of dogs that make them good friends. Body Paragraphs Each body paragraph begins with a topic sentence. If the thesis contains multiple points or assertions, each body paragraph should support or justify them, preferably in the order the assertions originally stated in the thesis. Thus, the topic sentence for the first body paragraph will refer to the first point in the thesis sentence and the topic sentence for the second body paragraph will refer to the second point in the thesis sentence. Generally, if the thesis sentence contains three related points, there should be three body paragraphs, though you should base the number of paragraphs on the number of supporting points needed. If the core topic of the essay is the format of college essays, the thesis sentence might read: A college essay has an introductory paragraph, several body paragraphs, and a concluding paragraph. The topic sentence for the first body paragraph might read: The first paragraph of an essay is the introductory paragraph. Sequentially, the topic sentence for the second body paragraph might read: The introductory paragraph is followed by several body paragraphs. And the topic sentence for the third body paragraph might read: The college essay’s final paragraph is its concluding paragraph. Everybody paragraphs uses specific details, such as anecdotes, comparisons and contrasts, definitions, examples, expert opinions, explanations, facts, and statistics to support and develop the claim that its topic sentence makes. Tips When writing an essay for a class assignment, make sure to follow your teacher or professor’s suggestions. Most teachers will reward creativity and thoughtful organization over dogmatic adherence to a prescribed structure. Many will not. If you are not sure how your teacher will respond to a specific structure, ask. Organizing your essay around the thesis sentence should begin with arranging the supporting elements to justify the assertion put forth in the thesis sentence. Not all thesis sentences will, or should, lay out each of the points you will cover in your essay. In the example introductory paragraph on dogs, the thesis sentence reads, â€Å"There is no friend truer than a dog. † Here, it is the task of the body paragraphs to justify or prove the truth of this assertion, as the writer did not specify what points they would cover. The writer may next ask what characteristics dogs have that make them true friends. Each characteristic may be the topic of a body paragraph. Loyalty, companionship, protection, and assistance are all terms that the writer could apply to dogs as friends. Note that if the writer puts dogs in a different context, for example, working dogs, the thesis might be different, and they would be focusing on other aspects of dogs. It is often effective to end a body paragraph with a sentence that rationalizes its presence in the essay. Ending a body paragraph without some sense of closure may cause the thought to sound incomplete. Each body paragraph is something like a miniature essay in that they each need an introductory sentence that sounds important and interesting, and that they each need a good closing sentence in order to produce a smooth transition between one point and the next. Body paragraphs can be long or short. It depends on the idea you want to develop in your paragraph. Depending on the specific  style of the essay, you may be able use very short paragraphs to signal a change of subject or to explain how the rest of the essay is organized. Do not spend too long on any one point. Providing extensive background may interest some readers, but others would find it tiresome. Keep in mind that the main importance of an essay is to provide basic background on a subject and, hopefully, to spark enough interest to induce further reading. Example A true friend will be there for you whenever you need them. Any dog owner will say that there is nobody that will stick with you through thick and thin as much as a dog. My own dog can barely contain her joy when I come home from a hard day. Regardless of my mood, and my attitude towards her, she is always happy when I am home, and that is usually enough to make me feel better about everything. True friends will help you when you are in need. Whether it is to protect their owner against some sort of threat or to help a blind person walk across the street, dogs are the most reliable companion a person could have. Few villains would attack a person walking a dog at night, and statistics show that homes with dogs are among the least likely to be broken into. The above example is a bit free-flowing and the writer intended it to be persuasive. The second paragraph combines various attributes of dogs including protection and companionship. Here is when doing a little research can also help. Imagine how much more effective the last statement would be if the writer cited some specific statistics and backed them up with a reliable reference. Concluding Paragraph The concluding paragraph usually restates the thesis and leaves the reader something about the topic to think about. If appropriate, it may also issue a call to act, inviting the reader to take a specific  course of action with regard to the points that the essay presented. Aristotle suggested that speakers and, by extension, writers should tell their audience what they are going to say, say it, and then tell them what they have said. The three-part essay model, consisting of an introductory paragraph, several body paragraphs, and a concluding paragraph, follows this strategy. Tips As with all writing, it is important to know your audience. All writing is persuasive, and if you write with your audience in mind, it will make your argument much more persuasive to that particular audience. When writing for a class assignment, the audience is your teacher. Depending on the assignment, the point of the essay may have nothing to do with the assigned topic. In most class assignments, the purpose is to persuade your teacher that you have a good grasp of grammar and spelling, that you can organize your thoughts in a comprehensive manner, and, perhaps, that you are capable of following instructions and adhering to some dogmatic formula the teacher regards as an essay. It is much easier to persuade your teacher that you have these capabilities if you can make your essay interesting to read at the same time. Place yourself in your teacher’s position and try to imagine reading one formulaic essay after another. If you want yours to stand out, capture your teacher’s attention and make your essay interesting, funny, or compelling. Example It is no accident that many people consider their dogs as part of their family. Just like every other member, dogs contribute to the happiness and well-being of the home, making the burdens of caring for them well worth the effort. Dogs deserve love and respect every bit as much as they love and respect us. After all, what more can a friend be? In the above example, focus shifted slightly and talked about dogs as members of the family. Many would suggest it departs from the logical organization of the rest of the essay, and some teachers may consider it unrelated and take points away. However, contrary to the common wisdom of â€Å"tell them what you are going to say, say it, and then tell them what you have said,† you may find it more interesting and persuasive to shift away from it as the writer did here, and then in the end, return to the core point of the essay. This gives additional effect to what an audience would otherwise  consider a very boring conclusion.

Relationship Between Earnings and the Chinese Stock Market

Relationship Between Earnings and the Chinese Stock Market Abstract In this paper, some factors are examined which are associated with equity value in an immature and emerging market, China. In the developed countries, research has indicated that both earnings and book value are playing an important role in forecasting equity value. While in China, earnings seems to have information content but earnings, by itself, seems to be weakening in importance over time. Book value has a more significant association with equity values. In the risky and unstable environment of China, where future expected earnings is quite uncertain, investors may not be pay much attention to earnings, but be more concerned for the book value. Regarding the role of book value, there are competing explanations. While some researchers conclude that book value was only important because of its contribution as a control for scale differences (Barth and Kallapur, 1996), others conclude that the important role book value played because it was a useful proxy for expected future normal earnings (Ohlson, 1995). Still others conclude that it is only relevant in the valuation of loss making and unsuccessful companies generally (Berger, Ofek and Swary 1996; Burgstahler and Dichev, 1997). The result of this paper indicates that, overall, earnings and book values are two important determents for pricing stock in China. Furthermore, this study indicates that book value is also important in an unstable economic environment and immature stock market, like China, which is still in early stage of capital market. 1 Introduction 1.1 Brief history In the mature market, empirical research finds that earnings and book value can be used to predict firm value. In particular, researchers have examined the association between earnings, book value, and a combination of both with stock prices and have found it to be significant (Ball and Brown 1968; Ball 1972; Kaplan and Roll, 1972; Collins and Kothari 1989; Burgstahler and Dichev, 1997). In an important paper referred as a landmark work, Ohlson (1995), in a famous paper, modeled this association and provided a widely used framework for empirical exploration. Burgstahler and Dichev (1997), a significant study in this area, indicated that equity value is an option style combination of recursion value and adaptation value. Recursion value (see Burgstahler and Dichev, 1997) is capitalized expected earnings when the firm recursively applies its current business technology to its resources. Adaptation value means the value of the firm’s resources adapted to alternative use. Current earnings are used as a proxy for recursion value and book value of equity is used as a proxy for adaptation value. While earnings provide a measure of how the firm’s resources are used currently, book value provides a measure of the value of the firm’s resources independent of how the resources are used currently. They note that, in particular, when the ratio of earnings to book value is high, earnings is the more important factor than book value of equity value. This is because under such a condition the firm is more likely to continue using resources in its current way. In contrary, when the ratio of earnings to book value is low, book value becomes the more important factor than earnings in equity valuation. Under this alternative condition, the firm is more likely to exercise the option to adapt its resources to a better alternative use. 1.2 Objectives In this dissertation, I will focus on the association between earnings and book value with stock prices in the Chinese stock market. Analysis of the Chinese market presents the potential for obtaining insights into stock pricing in an emerging or immature market. While some arguments could be made that certain aspects, for example, political and economic consequences of joining the World Trade Organization (WTO), make the Chinese market unique. In general, however, it should be noted that the Chinese market is still very reflective of developing (emerging) markets. Los and Yu (2008) classify China as an emerging market because of its low per capita income, chronic inflation, thin and immature capital markets, and concentrated financial and industrial sectors; criteria that they use to characterize emerging markets generally. Although the two Chinese Stock Exchange, the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE), were founded in December, 1990. The Chinese stock market is considered one of the highest growing emerging markets. But it is still small relative to the stock markets in developed countries. As Han et al. (2006) note, potential inefficiency and volatility also characterize the Chinese market. In the market, the buying and selling activity of a few large investors can make great effect to the stock prices. China is experiencing a highly economic transition and on the path to become an important and irreplaceable part of economic integration all over the world at present. Therefore, it is interesting to examine if the association of earnings, book value with stock prices which is applied to the larger and more efficient market will still hold in an immature (developing) stock market, like China. The objective of this dissertation is to examine the relationships between recursion value (earnings), adaptation value (book value) and equity value in an emerging stock market. The results of this dissertation will show that earnings is associated with stock price significantly for successful and middle-of-the-road companies; while, book value is associated with stock price significantly for unsuccessful companies. This may indicate that the â€Å"recursion value† portion of a company’s equity value is relatively of greater importance in equity valuation than â€Å"adaptation value† for successful (high earnings) companies, whereas the â€Å"adaptation value† portion of a company’s equity value is relatively of greater importance in equity valuation than â€Å"recursion value† for unsuccessful (low earnings) companies. 1.3 Economic and stock market characteristics of China This dissertation will examine the potential factors that cause the variation of stock prices in different conditions. Therefore, it is imperative to understand the economic and institutional influence behind such differences and the characteristics of Chinese stock market. In this section, I summarize the history of the Chinese stock market. China’s economy has changed from a centrally-planned economy (CPE), which was introduced in 1949, to a more market orientated economy  since 1978. China’s economic transition has been accompanied by a great social achievement since the late 1970s. However, there were some inherent deficiencies of the CPE, like the defective functioning of the planning mechanism, the monopolistic, non-contestable position of the State-Owned Enterprises (SOEs), the lack of adequate incentives, the lack of financial sanctions, the macro-economic, suboptimal allocation of resources (Gao, 2006 ). During the last three decades, China’s great successful economic transition has been accompanied by huge and complex social change, with an officially reported GDP growth rate of 9.5 percent per year since 1980 (Lindbeck, 2008). The growth rate of China’s economic has been among the highest in the world, especially since 1990. And China is a significant participant in the global economy currently. One of the most important developments was the reactivation of the stock market. To strengthen the operating performance and release the capital shortage experienced by SOEs, China has been promoting a market economy through corporatizing (i.e. privatizing) SOEs and developing securities markets. The origin of stock market in post-1949 mainland China can be traced to July 1984, when Beijing Tianqiao Department store was converted into a shareholding company. In August 1984, the Shanghai municipal government approved the first principle-level regulation on securities. The first stock was subsequently issued by a household electronics company in November 1984 and traded in August 1986 on the OTC market. In the next few years, more SOEs were â€Å"incorporated† by the selling of shares to their employees, other stock companies and other SOEs. The stock market, however, didn’t become a significant vehicle for SOE reform until the establishment of the two stock exchanges. In the early 1990s, the SHSE and the SZSE established, in December 1990 and in July 1991 respectively. In the following year, the Chinese Security Regulatory Commission (CSRC) was set up, as the Chinese equivalent of Securities and the Exchange Commission in the United States, to monitor and regulat e the stock market. Since then, the stock market has grown in a high speed, expanded rapidly and facilitated the reform of SOEs (Haw et al, 1999). In 1991, there were only 13 stocks listed and traded on these two exchanges (eight on SHSE and five on SZSE). By the first quarter of 2009, the number of firms listed had increased to 1625 (864 on SHSE and 761 on SZSE). (Gao, 2009) The total market capitalization of listed firms increased about 1522-fold over the 18-year period, from 11billion reminbi in 1991 (equivalent to about US$1.3 billion) to 12056.6 billion renminbi (equivalent to about US$1773 billion) in 2008 (Table 1). As of 24 April 2009, the total market capitalization was valued as 16742.768 billion renminbi (equivalent to about US$ 2462 billion) (Haw et al., 1999). 2 Literature review In this section, I initially discuss studies that examine the relationship between equity value and earnings and the relationship between equity values and book values respectively; then I examine the association of earnings and book values with equity values; finally I will focus on studies that have examined data from the Chinese stock market. 2.1 Studies examining association of earnings with equity value Generally speaking, much of the research in this area for the last 30 years was focused on inspecting the relationship between certain variables and equity values or stock price. In a seminal study, Ball and Brown (1968) found a positive and statistically significant association between earnings and equity value. An empirical evaluation of accounting income figures required for agreement as to what real-world results constituted a useful appropriate test. Because net income was a figure of particular interest to investors, the result they used as the standard forecast was the investment decision making as it was reflected in security prices. Since usefulness could be reduced by deficiencies in either of the content or the timing of existing annual net income numbers, both of them would be evaluated. The developments of capital theory at that time provided more choices to the price of security as an operational test of the usefulness of business. Impressive Institutions to support the idea of the theory that the capital market are both effective and fair, if the information is useful in forming capital asset prices, then the market in asset prices will be quickly adjusted to the information without leaving any opportunity for further abnormal gain. As the evidence indicates, if stock price do in fact really quickly adapt to the new information and then changes in stock prices will reflect the information market. As observed revision of stock prices and income report published would provide the evidence that the information reflected in the income figures are useful. Ball and Brown’s method of accounting on income to stock price was based on the theory and evidence by focusing on the unique information which is to a specific company. Specifically, Ball and Brown built two alternative models of what was the market expected income to be, and then investigated the error when the expected market response. 2.1.1  Expected and unexpected income changes According to Ball and Brown (1968), the income of enterprises in America tends to move together over the time. It has been demonstrated that about half of change in the level of average earnings per share (EPS) of a firm could be influenced by the whole economic environment. At least part of the change in the company’s income from one year to the next could be expected. In the past years, if a company’s revenue had been associated with other companies in a particular way, then understanding that relationship of the past, together with the understanding of the income of those other companies, had a particular expected rate of return at present. Therefore, in addition to confirm the impact of new information can have a similar equivalent to the differences between real change in income and expectations of income. But not all of these differences must be new information.  A number of changes in income were due to financing and other policy decisions made by the firm. Ball and Brown assumed that, to a first approximation, these changes were reflected in average change in income through time. Since the influence of the two components of change were felt at the same time, that is, economy wide and policy effects, the relationship must be estimated jointly. 2.1.2  The market reaction It had also been demonstrated that stock prices move together with the rate of return from holding stocks. The whole market return was influenced by the information released by all enterprises. (Ball and Brown, 1968) Since they were assessing report of income as it related to each company, its content and timing should be evaluated relative to the changes in the rate of return on the firms stocks net of whole market effects. 2.1.3  Some economic issues An assumption for Ordinary Least Squares (OLS) income regression model was that the average income of firm j in the market (Mj) and the unexpected income change were uncorrelated. Correlation between them could take at least two forms, which contained the firm in the market index of income (Mj) and the industry effects at that time. The first had been eliminated by construction (denoted by the y-subscript on M), but it had not been adjusted due to the impact of the industry at that time. It had been estimated that the impact of industry might account for only 10 percent of the variability of the income in a company. For this reason the model had been adopted as appropriate specifications, to believe that any bias in the estimates would not be very significant. However, as the statistical efficiency inspection on the model, Ball and Brown also presented results for another naà ¯ve model, which predicted that the income would be the same as last year. The forecast error (i.e. unexpected income change) was only changes in income since the previous year. As was the case with the income regression model, stock returns model contained a number of apparent violations of OLS assumptions. The return of market index was relevant to the residual because the market index contained the return for firm j, and because the industry impacts. Neither violation was serious, because the â€Å"Combination Investment Performance Index† of Fisher (Fisher, 1966) was calculated over all stocks listed on the New York Stock Exchange (hence stock returns was only a small portion of the index), and also because the industry impacts accounted for up to 10 percent (Brealey, 1968) of the changes in the rate of return on the average stock. Again, any bias had little effect on the results, because there is in no case was the stock return regression that was fitted over 100 observations (Fama, et al., 1967). Therefore, Ball and Brown (1968) assumed that it was impossible that no useful information about a particular firm reflected the rate of return during a period, but only the market-wide information that fitted for all firms. By abstracting market impacts, they identified the impact of information fitted to individual firms. Then, in order to determine whether part of the effect could be associated with information contained in the numbers of accounting income of a firm, they separated the expected and unexpected changes in income. If the income forecast error was negative, that was, if the actual change in income was less than its conditional expectation, they defined it as a bad news and predicted that if there was some relationship between accounting income numbers and stock prices, and then releases of the income figures would lead to the return on that firm’s stock, which was less than what would have been originally expected. The results from the empirical test of Ball and Brown showed that the information contained in the annual income figures were useful, as it related to stock prices. Beaver, Clark, and Wright (1979) found similar results and confirmed the initial findings of Ball and Brown (1968). Subsequent studies (Barth, Beaver, Landsman, 1992; Collins Kothari, 1989) found similar results again. The research of Lipe (1990) found that the relationship between earnings and equity value changes with the persistence of earnings. This study found that the equity value during a period is a function of (1) the time-series persistence of the earnings series, (2) the interest rate used in discounting expected future earnings, and (3) the relative ability of earnings versus alternative information to predict future earnings. The comparative statistics of Lipe (1990) showed that the response coefficient played an increasingly important role for past earnings to predict future earnings and an increasing function of persistence. In addition, the movements of stock price changed conditionally on earnings being announced was a decreasing effect of the predictability of the earnings series and an increasing effect of earnings persistence. If the predictability or response-coefficient effect was positive, that was because the value attached to a one-dollar current-period earnings shock was an increasing effect of predictability; if the predictability or variance-of-price-changes effect was negative, that was because the average quantity of unexpected information released during the period was a decreasing effect of predictability. Other studies refined the earlier studies by disintegrating earnings into components and then empirically testing the association between these components and equity values (Lipe, 1986; Wilson, 1986). 2.2 Studies examining association of book values with equity values A great number of studies focus on the balance sheet measures of assets and liabilities. These studies find a statistically significant relationship between book values and equity values of the firm (Penman, 1992; Barth Kallapur, 1996; Ohison, 1995; Berger, Ofek, Swary, 1996; Burgstahler Dichev, 1997). Book values of the firm’s assets and liabilities are used in these studies, which reinforce the assumption that measures of assets and liabilities reflect the expected results of future activities. However, some different conclusions are arrived at by the studies regarding the importance of book value. Barth and Kallapur (1996) stated that book value was important only because it acted as a control for size differences. Penman (1992) and Ohlson (1995) concluded that book value is important because it also acted as a proxy for earnings. Still others offer a competing explanation. Berger et al. (1996) reported that there is a positive and highly significant relation between market value and estimated liquidation value after controlling for present value of expected cash flow. Further assurance that correlated omitted variables do not affect the results is provided by the fact that the positive relation between market values and liquidation value changes in holding as well as levels. Berger et al. (1996) stated that the abandonment option was equal to an American put option on a paying dividend stock. Their analysis of this option results in the forecasting about how liquidation value influences firm value. All the other equality, the abandonment option leads to firms with a much bigger number of liquidation values being worth more investors. Therefore, they predict that market value is positively associated with liquidation value, after controlling for the relationship between market value and the present value of expected cash flow. Generally speaking, liquidation value for going concerns is not observable. Moreover, they concern more about the association between balance sheet information and the abandonment option’s value. They, therefore, estimate the relation between book value and liquidation value for major asset classes by choosing and analyzing the discontinued options footnotes of 157 sufficiently-detailed information firms. They find that one-dollar book value produces, 72 cents of liquidation value for receivables on average. Applying these estimates to the balance sheet disclosures of all the firms used as samples provides them with estimated liquidation values. In the empirical results, they report that after controlling for the option’s exercise price, the market value of a firm’s equity increases in a close approximation one for one with increases in the present value of after-interest cash flows. The significant positive estimate on the excess liquidation value movements continues to support the inference that the abandonment option makes a more important and significant contribution to the market value of a firm’s equity than that made by the present value of cash flow. To investigate the change over time in the association between abandonment option value and liquidation value, and to solve that problem that the pooled observations may not be independent, because it includes the same firm for many years. The results of their further research continue to show a positive, strong relation between the estimated liquidation value and the market value of the firm’s equity. Moreover, to further reduction of the concern that the inferences may be influenced by the liquidation value measure capturing a portion of true present value of cash flow that is omitted from their proxy, they perform an analysis in changes. At the same time, the sample contains all first differences of the firms from the levels analysis that meet sample selection restrictions. Berger et al. (1996) require that the first earnings prediction occur no later than the fourth month after the date liquidation value is calculated, which make sure that the changes in liquidation value and present value of cash flow are aligned properly in time for each firm in the sample. The change of percentage in equity value is for the purpose that captures the impact of operational decisions, not the impact of insurances and redemptions. So they delete the firms with insurances and retirements. The results for the changes is as expected, the fact that the latter estimate is significantly positive supports strong evidence, however, that the association they documented earlier between equity value and liquidation value was not affected by liquidation value and the present value of cash flow that both measure different part of true present value of cash flow. The constant component of any association between liquidation value and the omitted part of true present value of cash flow is removed by examining changes rather than levels. Therefore, Berger et al. continue to find the strong, positive association liquidation value and equity value of a firm. Berger et al. (1996) and Burgstahler and Dichev (1997) concluded that book value has relatively more significant association with stock prices when a firm is unsuccessful and making losses. They argued that this was because book value acted as a proxy for the â€Å"abandonment option†. 2.3 Studies examining association of earnings and book values with equity values Some studies observe the association between earnings and book values with equity values. Bernard (1995) tested several valuation models empirically. He found that book value per share accounted for 55% of the cross sectional variability in price per share; that book value and rank of return on equity accounted for 64% of the variation in equity price; and that estimated earnings and book values accounted for 68% of the variation in equity prices. Ohlson (1995) did not focus on earnings alone; theoretically, he modeled the role of earnings, book value and dividends in the valuation of a firm’s equity. An important combined function to the statement of changes in owner’s equity is allocated by accounting method. The statement includes the bottom-line items in the balance sheet and income statement, book value and earnings, and its format needs the change in book value to equal earnings minus dividends. This relation is referred as the clean surplus relationship because all changes in assets and liabilities which are unrelated to dividends must pass though the income statement. Generally, this scheme is accepted by accounting theory without connecting it to a user’s perspective on accounting data. While the underlying idea that net stocks of value settle with the creation and distribution of value produces a basic question in an equity valuation context: whether one can create a cohesive theory of a firm’s value that depends on the clean surplus relation to identify a distinct role for each of the three variables: earnings, book value and dividends. Ohlson (1995) resolves the question in a neoclassical framework. In this case, the analysis starts from the assumption that value is equal to the present value of expected dividends (Rubinstein, 1976). Then one can assume the clean surplus relation to replace dividends with earnings and book values in the formula of present value. At the same time, a multiple-date, uncertain model such that earnings and book value act as complementary value indicators is led to by assumption on the stochastic behavior of the accounting data, In a specific way, the main point of the valuation function expresses value as a weighted average of (i) capitalized earnings at present (adjusted for dividends) and (ii) book value at present. Extreme parameterizations of the model produce either capitalized earnings or book value at presents the only value indicators. Ohlson (1991) have examined both of the settings. At its most primary level, he accordingly generalizes prior analysis to derive a convex combination of a pure flow model of value and a pure stock model of value. The combination is an interesting conception because both the bottom-line items are brought into valuation through the clean additional relation. The development of model, in which Ohlson (1995) produces the value of a firm as linear additive functions of both earnings and book value, shows the relevance of abnormal or residual earnings as a variable that drives a company’s value. Earnings minus a charge for the use of capital define this accounting-based performance measure as measured by book value that is in the beginning of period multiplied by the cost of capital. Abnormal or residual earnings hold on the difference market and book values, that is to say, they bear the goodwill of a company. As a matter of fact, a particular parsimonious expression for goodwill is derived from a straight forward two step procedure as it relates to abnormal or residual earnings. Firstly, following Peasnell (1981) and others, the clean surplus relation indicates that goodwill is equal to the present value of future expected abnormal or residual earnings. Secondly, if one further assumes that abnormal or residual earnings comply with an autoregressive process, then it follows that goodwill is equal to abnormal or residual earnings at present scaled by a positive constant. The results emphasize that value can be driven by assuming abnormal or residual earnings processes that make no reference to past or future expected dividends. Not only does owners’ equity accounting subsume the clean surplus relation, it also indicates that dividends reduce book value but leave earnings at present unaffected. This additional feature is exploited to examine the margin effects of dividends on value and on the evolution of accounting data (Modigliani, 1958; Miller, 1961). Market value is displaced by dividends on a dollar for dollar basis, so that dividend payment irrelevancy applies. In addition to that, dividends that paid today impact expected future earnings negatively. The creation of wealth is separated by the model accordingly from the distribution of wealth. On the important condition that one generally attaches to Modigliani and Miller (1958, 1961) properties in valuation analysis, the economic significance of owners’ equity accounting is enhanced by the requirement that dividends reduce book value but not current earnings. The model allows information beyond earnings, book value and dividends. The additional information is motivated by the idea that expected future earnings are affected by some relevant value events as opposed to current earnings, that is to say, accounting measurements incorporate some relevant value events only after a time delay. The feature is interesting because the analysis implies that the weighted average of capitalized earnings and book value still support the main point of the valuation function, though the accounting data will be incomplete indicators of value. Ohlson (1995) made a conclusion that, earnings at present might have a strong relation with market value of equity while current dividends are more important than future earnings in predictive ability. He made the theoretical framework for further empirical explorations. In a further refinement of Ohlson (1995), Burgstahler and Dichev (1997) showed that earnings and book values are positively and significant associated with equity values. However, they found that the relationship was nonlinear (i.e., moderated by factors such as success of a firm) and not additive as suggested by Ohlson (1995). In 1997, the research of theirs developed an option- style model of equity value that incorporated the capitalized value of the firm’s expected earnings (under the assumption that the firm continues its current way of employing resources) but also explicitly recognized the value of firms adaption option (i.e. the value of the option converted the firm’s resources to alternative, more productive uses). The main forecasting of the model is that the value of equity is a convex function of both expected earnings and book value. Their empirical evidence strongly supported the prediction of convexity – the coefficient on earnings increased with the ratio of earnings to book value and the coefficient on book value decreased with the ratio of earnings to book value. They developed two propositions for the relationship of recursion (a proxy of earnings) and adaptation value (a proxy of book value of equity) components with market value. In the model below, an option-style combination of recursion value and adaptation value are reflected in the equity value. Recursion value is capitalized expected earnings when the company recursively applies its business technology at present to its resources. Adaptation value is the value of the company’s resources which adapted to an alternative use. The possibility that the company will exercise the option to conform the resources to another way to use is reflected in the relative weights on the two factors of market value of equity. In a specific way, when the recursion value is not high relative to the adaptation value, the company will opt out of recursion value in favor of adaptation value. Two propositions are led to by the shape of valuation function in each argument. The model is as follows: MV (E, AV)EAV There are four basic terms in the model. MV represents market value of equity; E represents expected future earnings which use the company’s business technology at present; c represents capitalization factor for earnings; AV represents adaptation value. E and AV are random variables. The joint distribution of the two variables is described by the multivariate no Relationship Between Earnings and the Chinese Stock Market Relationship Between Earnings and the Chinese Stock Market Abstract In this paper, some factors are examined which are associated with equity value in an immature and emerging market, China. In the developed countries, research has indicated that both earnings and book value are playing an important role in forecasting equity value. While in China, earnings seems to have information content but earnings, by itself, seems to be weakening in importance over time. Book value has a more significant association with equity values. In the risky and unstable environment of China, where future expected earnings is quite uncertain, investors may not be pay much attention to earnings, but be more concerned for the book value. Regarding the role of book value, there are competing explanations. While some researchers conclude that book value was only important because of its contribution as a control for scale differences (Barth and Kallapur, 1996), others conclude that the important role book value played because it was a useful proxy for expected future normal earnings (Ohlson, 1995). Still others conclude that it is only relevant in the valuation of loss making and unsuccessful companies generally (Berger, Ofek and Swary 1996; Burgstahler and Dichev, 1997). The result of this paper indicates that, overall, earnings and book values are two important determents for pricing stock in China. Furthermore, this study indicates that book value is also important in an unstable economic environment and immature stock market, like China, which is still in early stage of capital market. 1 Introduction 1.1 Brief history In the mature market, empirical research finds that earnings and book value can be used to predict firm value. In particular, researchers have examined the association between earnings, book value, and a combination of both with stock prices and have found it to be significant (Ball and Brown 1968; Ball 1972; Kaplan and Roll, 1972; Collins and Kothari 1989; Burgstahler and Dichev, 1997). In an important paper referred as a landmark work, Ohlson (1995), in a famous paper, modeled this association and provided a widely used framework for empirical exploration. Burgstahler and Dichev (1997), a significant study in this area, indicated that equity value is an option style combination of recursion value and adaptation value. Recursion value (see Burgstahler and Dichev, 1997) is capitalized expected earnings when the firm recursively applies its current business technology to its resources. Adaptation value means the value of the firm’s resources adapted to alternative use. Current earnings are used as a proxy for recursion value and book value of equity is used as a proxy for adaptation value. While earnings provide a measure of how the firm’s resources are used currently, book value provides a measure of the value of the firm’s resources independent of how the resources are used currently. They note that, in particular, when the ratio of earnings to book value is high, earnings is the more important factor than book value of equity value. This is because under such a condition the firm is more likely to continue using resources in its current way. In contrary, when the ratio of earnings to book value is low, book value becomes the more important factor than earnings in equity valuation. Under this alternative condition, the firm is more likely to exercise the option to adapt its resources to a better alternative use. 1.2 Objectives In this dissertation, I will focus on the association between earnings and book value with stock prices in the Chinese stock market. Analysis of the Chinese market presents the potential for obtaining insights into stock pricing in an emerging or immature market. While some arguments could be made that certain aspects, for example, political and economic consequences of joining the World Trade Organization (WTO), make the Chinese market unique. In general, however, it should be noted that the Chinese market is still very reflective of developing (emerging) markets. Los and Yu (2008) classify China as an emerging market because of its low per capita income, chronic inflation, thin and immature capital markets, and concentrated financial and industrial sectors; criteria that they use to characterize emerging markets generally. Although the two Chinese Stock Exchange, the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE), were founded in December, 1990. The Chinese stock market is considered one of the highest growing emerging markets. But it is still small relative to the stock markets in developed countries. As Han et al. (2006) note, potential inefficiency and volatility also characterize the Chinese market. In the market, the buying and selling activity of a few large investors can make great effect to the stock prices. China is experiencing a highly economic transition and on the path to become an important and irreplaceable part of economic integration all over the world at present. Therefore, it is interesting to examine if the association of earnings, book value with stock prices which is applied to the larger and more efficient market will still hold in an immature (developing) stock market, like China. The objective of this dissertation is to examine the relationships between recursion value (earnings), adaptation value (book value) and equity value in an emerging stock market. The results of this dissertation will show that earnings is associated with stock price significantly for successful and middle-of-the-road companies; while, book value is associated with stock price significantly for unsuccessful companies. This may indicate that the â€Å"recursion value† portion of a company’s equity value is relatively of greater importance in equity valuation than â€Å"adaptation value† for successful (high earnings) companies, whereas the â€Å"adaptation value† portion of a company’s equity value is relatively of greater importance in equity valuation than â€Å"recursion value† for unsuccessful (low earnings) companies. 1.3 Economic and stock market characteristics of China This dissertation will examine the potential factors that cause the variation of stock prices in different conditions. Therefore, it is imperative to understand the economic and institutional influence behind such differences and the characteristics of Chinese stock market. In this section, I summarize the history of the Chinese stock market. China’s economy has changed from a centrally-planned economy (CPE), which was introduced in 1949, to a more market orientated economy  since 1978. China’s economic transition has been accompanied by a great social achievement since the late 1970s. However, there were some inherent deficiencies of the CPE, like the defective functioning of the planning mechanism, the monopolistic, non-contestable position of the State-Owned Enterprises (SOEs), the lack of adequate incentives, the lack of financial sanctions, the macro-economic, suboptimal allocation of resources (Gao, 2006 ). During the last three decades, China’s great successful economic transition has been accompanied by huge and complex social change, with an officially reported GDP growth rate of 9.5 percent per year since 1980 (Lindbeck, 2008). The growth rate of China’s economic has been among the highest in the world, especially since 1990. And China is a significant participant in the global economy currently. One of the most important developments was the reactivation of the stock market. To strengthen the operating performance and release the capital shortage experienced by SOEs, China has been promoting a market economy through corporatizing (i.e. privatizing) SOEs and developing securities markets. The origin of stock market in post-1949 mainland China can be traced to July 1984, when Beijing Tianqiao Department store was converted into a shareholding company. In August 1984, the Shanghai municipal government approved the first principle-level regulation on securities. The first stock was subsequently issued by a household electronics company in November 1984 and traded in August 1986 on the OTC market. In the next few years, more SOEs were â€Å"incorporated† by the selling of shares to their employees, other stock companies and other SOEs. The stock market, however, didn’t become a significant vehicle for SOE reform until the establishment of the two stock exchanges. In the early 1990s, the SHSE and the SZSE established, in December 1990 and in July 1991 respectively. In the following year, the Chinese Security Regulatory Commission (CSRC) was set up, as the Chinese equivalent of Securities and the Exchange Commission in the United States, to monitor and regulat e the stock market. Since then, the stock market has grown in a high speed, expanded rapidly and facilitated the reform of SOEs (Haw et al, 1999). In 1991, there were only 13 stocks listed and traded on these two exchanges (eight on SHSE and five on SZSE). By the first quarter of 2009, the number of firms listed had increased to 1625 (864 on SHSE and 761 on SZSE). (Gao, 2009) The total market capitalization of listed firms increased about 1522-fold over the 18-year period, from 11billion reminbi in 1991 (equivalent to about US$1.3 billion) to 12056.6 billion renminbi (equivalent to about US$1773 billion) in 2008 (Table 1). As of 24 April 2009, the total market capitalization was valued as 16742.768 billion renminbi (equivalent to about US$ 2462 billion) (Haw et al., 1999). 2 Literature review In this section, I initially discuss studies that examine the relationship between equity value and earnings and the relationship between equity values and book values respectively; then I examine the association of earnings and book values with equity values; finally I will focus on studies that have examined data from the Chinese stock market. 2.1 Studies examining association of earnings with equity value Generally speaking, much of the research in this area for the last 30 years was focused on inspecting the relationship between certain variables and equity values or stock price. In a seminal study, Ball and Brown (1968) found a positive and statistically significant association between earnings and equity value. An empirical evaluation of accounting income figures required for agreement as to what real-world results constituted a useful appropriate test. Because net income was a figure of particular interest to investors, the result they used as the standard forecast was the investment decision making as it was reflected in security prices. Since usefulness could be reduced by deficiencies in either of the content or the timing of existing annual net income numbers, both of them would be evaluated. The developments of capital theory at that time provided more choices to the price of security as an operational test of the usefulness of business. Impressive Institutions to support the idea of the theory that the capital market are both effective and fair, if the information is useful in forming capital asset prices, then the market in asset prices will be quickly adjusted to the information without leaving any opportunity for further abnormal gain. As the evidence indicates, if stock price do in fact really quickly adapt to the new information and then changes in stock prices will reflect the information market. As observed revision of stock prices and income report published would provide the evidence that the information reflected in the income figures are useful. Ball and Brown’s method of accounting on income to stock price was based on the theory and evidence by focusing on the unique information which is to a specific company. Specifically, Ball and Brown built two alternative models of what was the market expected income to be, and then investigated the error when the expected market response. 2.1.1  Expected and unexpected income changes According to Ball and Brown (1968), the income of enterprises in America tends to move together over the time. It has been demonstrated that about half of change in the level of average earnings per share (EPS) of a firm could be influenced by the whole economic environment. At least part of the change in the company’s income from one year to the next could be expected. In the past years, if a company’s revenue had been associated with other companies in a particular way, then understanding that relationship of the past, together with the understanding of the income of those other companies, had a particular expected rate of return at present. Therefore, in addition to confirm the impact of new information can have a similar equivalent to the differences between real change in income and expectations of income. But not all of these differences must be new information.  A number of changes in income were due to financing and other policy decisions made by the firm. Ball and Brown assumed that, to a first approximation, these changes were reflected in average change in income through time. Since the influence of the two components of change were felt at the same time, that is, economy wide and policy effects, the relationship must be estimated jointly. 2.1.2  The market reaction It had also been demonstrated that stock prices move together with the rate of return from holding stocks. The whole market return was influenced by the information released by all enterprises. (Ball and Brown, 1968) Since they were assessing report of income as it related to each company, its content and timing should be evaluated relative to the changes in the rate of return on the firms stocks net of whole market effects. 2.1.3  Some economic issues An assumption for Ordinary Least Squares (OLS) income regression model was that the average income of firm j in the market (Mj) and the unexpected income change were uncorrelated. Correlation between them could take at least two forms, which contained the firm in the market index of income (Mj) and the industry effects at that time. The first had been eliminated by construction (denoted by the y-subscript on M), but it had not been adjusted due to the impact of the industry at that time. It had been estimated that the impact of industry might account for only 10 percent of the variability of the income in a company. For this reason the model had been adopted as appropriate specifications, to believe that any bias in the estimates would not be very significant. However, as the statistical efficiency inspection on the model, Ball and Brown also presented results for another naà ¯ve model, which predicted that the income would be the same as last year. The forecast error (i.e. unexpected income change) was only changes in income since the previous year. As was the case with the income regression model, stock returns model contained a number of apparent violations of OLS assumptions. The return of market index was relevant to the residual because the market index contained the return for firm j, and because the industry impacts. Neither violation was serious, because the â€Å"Combination Investment Performance Index† of Fisher (Fisher, 1966) was calculated over all stocks listed on the New York Stock Exchange (hence stock returns was only a small portion of the index), and also because the industry impacts accounted for up to 10 percent (Brealey, 1968) of the changes in the rate of return on the average stock. Again, any bias had little effect on the results, because there is in no case was the stock return regression that was fitted over 100 observations (Fama, et al., 1967). Therefore, Ball and Brown (1968) assumed that it was impossible that no useful information about a particular firm reflected the rate of return during a period, but only the market-wide information that fitted for all firms. By abstracting market impacts, they identified the impact of information fitted to individual firms. Then, in order to determine whether part of the effect could be associated with information contained in the numbers of accounting income of a firm, they separated the expected and unexpected changes in income. If the income forecast error was negative, that was, if the actual change in income was less than its conditional expectation, they defined it as a bad news and predicted that if there was some relationship between accounting income numbers and stock prices, and then releases of the income figures would lead to the return on that firm’s stock, which was less than what would have been originally expected. The results from the empirical test of Ball and Brown showed that the information contained in the annual income figures were useful, as it related to stock prices. Beaver, Clark, and Wright (1979) found similar results and confirmed the initial findings of Ball and Brown (1968). Subsequent studies (Barth, Beaver, Landsman, 1992; Collins Kothari, 1989) found similar results again. The research of Lipe (1990) found that the relationship between earnings and equity value changes with the persistence of earnings. This study found that the equity value during a period is a function of (1) the time-series persistence of the earnings series, (2) the interest rate used in discounting expected future earnings, and (3) the relative ability of earnings versus alternative information to predict future earnings. The comparative statistics of Lipe (1990) showed that the response coefficient played an increasingly important role for past earnings to predict future earnings and an increasing function of persistence. In addition, the movements of stock price changed conditionally on earnings being announced was a decreasing effect of the predictability of the earnings series and an increasing effect of earnings persistence. If the predictability or response-coefficient effect was positive, that was because the value attached to a one-dollar current-period earnings shock was an increasing effect of predictability; if the predictability or variance-of-price-changes effect was negative, that was because the average quantity of unexpected information released during the period was a decreasing effect of predictability. Other studies refined the earlier studies by disintegrating earnings into components and then empirically testing the association between these components and equity values (Lipe, 1986; Wilson, 1986). 2.2 Studies examining association of book values with equity values A great number of studies focus on the balance sheet measures of assets and liabilities. These studies find a statistically significant relationship between book values and equity values of the firm (Penman, 1992; Barth Kallapur, 1996; Ohison, 1995; Berger, Ofek, Swary, 1996; Burgstahler Dichev, 1997). Book values of the firm’s assets and liabilities are used in these studies, which reinforce the assumption that measures of assets and liabilities reflect the expected results of future activities. However, some different conclusions are arrived at by the studies regarding the importance of book value. Barth and Kallapur (1996) stated that book value was important only because it acted as a control for size differences. Penman (1992) and Ohlson (1995) concluded that book value is important because it also acted as a proxy for earnings. Still others offer a competing explanation. Berger et al. (1996) reported that there is a positive and highly significant relation between market value and estimated liquidation value after controlling for present value of expected cash flow. Further assurance that correlated omitted variables do not affect the results is provided by the fact that the positive relation between market values and liquidation value changes in holding as well as levels. Berger et al. (1996) stated that the abandonment option was equal to an American put option on a paying dividend stock. Their analysis of this option results in the forecasting about how liquidation value influences firm value. All the other equality, the abandonment option leads to firms with a much bigger number of liquidation values being worth more investors. Therefore, they predict that market value is positively associated with liquidation value, after controlling for the relationship between market value and the present value of expected cash flow. Generally speaking, liquidation value for going concerns is not observable. Moreover, they concern more about the association between balance sheet information and the abandonment option’s value. They, therefore, estimate the relation between book value and liquidation value for major asset classes by choosing and analyzing the discontinued options footnotes of 157 sufficiently-detailed information firms. They find that one-dollar book value produces, 72 cents of liquidation value for receivables on average. Applying these estimates to the balance sheet disclosures of all the firms used as samples provides them with estimated liquidation values. In the empirical results, they report that after controlling for the option’s exercise price, the market value of a firm’s equity increases in a close approximation one for one with increases in the present value of after-interest cash flows. The significant positive estimate on the excess liquidation value movements continues to support the inference that the abandonment option makes a more important and significant contribution to the market value of a firm’s equity than that made by the present value of cash flow. To investigate the change over time in the association between abandonment option value and liquidation value, and to solve that problem that the pooled observations may not be independent, because it includes the same firm for many years. The results of their further research continue to show a positive, strong relation between the estimated liquidation value and the market value of the firm’s equity. Moreover, to further reduction of the concern that the inferences may be influenced by the liquidation value measure capturing a portion of true present value of cash flow that is omitted from their proxy, they perform an analysis in changes. At the same time, the sample contains all first differences of the firms from the levels analysis that meet sample selection restrictions. Berger et al. (1996) require that the first earnings prediction occur no later than the fourth month after the date liquidation value is calculated, which make sure that the changes in liquidation value and present value of cash flow are aligned properly in time for each firm in the sample. The change of percentage in equity value is for the purpose that captures the impact of operational decisions, not the impact of insurances and redemptions. So they delete the firms with insurances and retirements. The results for the changes is as expected, the fact that the latter estimate is significantly positive supports strong evidence, however, that the association they documented earlier between equity value and liquidation value was not affected by liquidation value and the present value of cash flow that both measure different part of true present value of cash flow. The constant component of any association between liquidation value and the omitted part of true present value of cash flow is removed by examining changes rather than levels. Therefore, Berger et al. continue to find the strong, positive association liquidation value and equity value of a firm. Berger et al. (1996) and Burgstahler and Dichev (1997) concluded that book value has relatively more significant association with stock prices when a firm is unsuccessful and making losses. They argued that this was because book value acted as a proxy for the â€Å"abandonment option†. 2.3 Studies examining association of earnings and book values with equity values Some studies observe the association between earnings and book values with equity values. Bernard (1995) tested several valuation models empirically. He found that book value per share accounted for 55% of the cross sectional variability in price per share; that book value and rank of return on equity accounted for 64% of the variation in equity price; and that estimated earnings and book values accounted for 68% of the variation in equity prices. Ohlson (1995) did not focus on earnings alone; theoretically, he modeled the role of earnings, book value and dividends in the valuation of a firm’s equity. An important combined function to the statement of changes in owner’s equity is allocated by accounting method. The statement includes the bottom-line items in the balance sheet and income statement, book value and earnings, and its format needs the change in book value to equal earnings minus dividends. This relation is referred as the clean surplus relationship because all changes in assets and liabilities which are unrelated to dividends must pass though the income statement. Generally, this scheme is accepted by accounting theory without connecting it to a user’s perspective on accounting data. While the underlying idea that net stocks of value settle with the creation and distribution of value produces a basic question in an equity valuation context: whether one can create a cohesive theory of a firm’s value that depends on the clean surplus relation to identify a distinct role for each of the three variables: earnings, book value and dividends. Ohlson (1995) resolves the question in a neoclassical framework. In this case, the analysis starts from the assumption that value is equal to the present value of expected dividends (Rubinstein, 1976). Then one can assume the clean surplus relation to replace dividends with earnings and book values in the formula of present value. At the same time, a multiple-date, uncertain model such that earnings and book value act as complementary value indicators is led to by assumption on the stochastic behavior of the accounting data, In a specific way, the main point of the valuation function expresses value as a weighted average of (i) capitalized earnings at present (adjusted for dividends) and (ii) book value at present. Extreme parameterizations of the model produce either capitalized earnings or book value at presents the only value indicators. Ohlson (1991) have examined both of the settings. At its most primary level, he accordingly generalizes prior analysis to derive a convex combination of a pure flow model of value and a pure stock model of value. The combination is an interesting conception because both the bottom-line items are brought into valuation through the clean additional relation. The development of model, in which Ohlson (1995) produces the value of a firm as linear additive functions of both earnings and book value, shows the relevance of abnormal or residual earnings as a variable that drives a company’s value. Earnings minus a charge for the use of capital define this accounting-based performance measure as measured by book value that is in the beginning of period multiplied by the cost of capital. Abnormal or residual earnings hold on the difference market and book values, that is to say, they bear the goodwill of a company. As a matter of fact, a particular parsimonious expression for goodwill is derived from a straight forward two step procedure as it relates to abnormal or residual earnings. Firstly, following Peasnell (1981) and others, the clean surplus relation indicates that goodwill is equal to the present value of future expected abnormal or residual earnings. Secondly, if one further assumes that abnormal or residual earnings comply with an autoregressive process, then it follows that goodwill is equal to abnormal or residual earnings at present scaled by a positive constant. The results emphasize that value can be driven by assuming abnormal or residual earnings processes that make no reference to past or future expected dividends. Not only does owners’ equity accounting subsume the clean surplus relation, it also indicates that dividends reduce book value but leave earnings at present unaffected. This additional feature is exploited to examine the margin effects of dividends on value and on the evolution of accounting data (Modigliani, 1958; Miller, 1961). Market value is displaced by dividends on a dollar for dollar basis, so that dividend payment irrelevancy applies. In addition to that, dividends that paid today impact expected future earnings negatively. The creation of wealth is separated by the model accordingly from the distribution of wealth. On the important condition that one generally attaches to Modigliani and Miller (1958, 1961) properties in valuation analysis, the economic significance of owners’ equity accounting is enhanced by the requirement that dividends reduce book value but not current earnings. The model allows information beyond earnings, book value and dividends. The additional information is motivated by the idea that expected future earnings are affected by some relevant value events as opposed to current earnings, that is to say, accounting measurements incorporate some relevant value events only after a time delay. The feature is interesting because the analysis implies that the weighted average of capitalized earnings and book value still support the main point of the valuation function, though the accounting data will be incomplete indicators of value. Ohlson (1995) made a conclusion that, earnings at present might have a strong relation with market value of equity while current dividends are more important than future earnings in predictive ability. He made the theoretical framework for further empirical explorations. In a further refinement of Ohlson (1995), Burgstahler and Dichev (1997) showed that earnings and book values are positively and significant associated with equity values. However, they found that the relationship was nonlinear (i.e., moderated by factors such as success of a firm) and not additive as suggested by Ohlson (1995). In 1997, the research of theirs developed an option- style model of equity value that incorporated the capitalized value of the firm’s expected earnings (under the assumption that the firm continues its current way of employing resources) but also explicitly recognized the value of firms adaption option (i.e. the value of the option converted the firm’s resources to alternative, more productive uses). The main forecasting of the model is that the value of equity is a convex function of both expected earnings and book value. Their empirical evidence strongly supported the prediction of convexity – the coefficient on earnings increased with the ratio of earnings to book value and the coefficient on book value decreased with the ratio of earnings to book value. They developed two propositions for the relationship of recursion (a proxy of earnings) and adaptation value (a proxy of book value of equity) components with market value. In the model below, an option-style combination of recursion value and adaptation value are reflected in the equity value. Recursion value is capitalized expected earnings when the company recursively applies its business technology at present to its resources. Adaptation value is the value of the company’s resources which adapted to an alternative use. The possibility that the company will exercise the option to conform the resources to another way to use is reflected in the relative weights on the two factors of market value of equity. In a specific way, when the recursion value is not high relative to the adaptation value, the company will opt out of recursion value in favor of adaptation value. Two propositions are led to by the shape of valuation function in each argument. The model is as follows: MV (E, AV)EAV There are four basic terms in the model. MV represents market value of equity; E represents expected future earnings which use the company’s business technology at present; c represents capitalization factor for earnings; AV represents adaptation value. E and AV are random variables. The joint distribution of the two variables is described by the multivariate no

Congressmen And Their Influences :: essays research papers

Congressmen and Their Influences The notion that a Congressman ran for office for unselfish goals and went away to Washington to serve his country and represent his neighbors seems quaint and luaghable compared to the way that we currently regard members of congress. Recent views have suggested that most people felt that while the institution on the whole was corrupt, but that their representative was a good person and servant of the electorate. More and more each member is scrutinized and judged harsher by their constituencies, the media, their own party and the numerous interest groups and cuacuses that make it possible for them to act as Senators and Representatives. The Congress and President work together through their own institutions in the common goal of running the worlds most powerful nation. The legilative powers were divided this way to ensure that all new laws would be debated and decided not by a few but through a heirarchy that gives every citizen a part to play in our collective decision making. Each of the individuals in the House has an equitable voting relationship with the others, 1=1=1, when it come to passing legislation, but in the earlier phases of formulating policy some relationships are dominant over others. The only ones that would be lower than a freshman Democrat in the 105th Congress from a rural, low industry district are probably those that represent our protectorates Guam, Puerto Rico, etc. Many levels within the parties and the institution afford some members leadership roles and positions that they can use to sway the other members. The Whips, Majority and Minority leaders and the Speaker of the House are looking for party cohesion and also bi-partisan support for a bill. Coalitions are forged or broken depending on the issue at hand. Individual committee positions are another point were some are more powerful than others. The committees are major superintendents of some agencies and members not on that particular committee may be ignored or relegated to other tasks while the major decisions are being made. Since much of policy direction is dominated by the two party system they are able to use the majority selected rules and procedures of the House to their advantage. In the more collegial and congenial Senate power is more diffused and shared between the members and minority rights are protected. In the parties the leaders are able to use their personalities and power to influence the agenda that is agreed upon. The way the House is run leaves a great deal of discretion to the leaders of the parties and committee members

Helth and Saftey Childcare Assignment Essay

There are many legislations that influence healthy, safe and secure environment for early years settings. The Heath and Safety (young persons) Regulations 1997 states that ‘’Employers need to complete risk assessments for people under 18 years of age.’’ (Thornes 2008 pg84) It also states that if any hazards are the setting, then give them training that the student, trainee or work experience people may nee to do with that particular hazard. Another legislation is Health and Safety at work Act 1974. This legislation is the one that provides general guidance about all this health and safety and workers must have policies and procedures saying how the health and safety will be ensured and then follow these policies and procedures. Control of Substances Hazardous to Health Regulations (COSHH) 1994 is also part of the legislation for a healthy, safe and secure environment and states that a risk assessment should be done on hazards and make sure to store appropri ate as the COSHH regulations are. Reporting injuries diseases and dangerous occurrences Regulations (RIDDOR) 1995. E2 Describe the producers which will keep a child safe for each accident, illness or emergency. There are many procedures which keep children safe for each accident, illness or emergency and each childcare setting will have exclusion for illness policy. In my setting the exclusion policy states that all children should be excluded if they have an illness until recovered to prevent any one else in the setting getting infected. Any illness or accident will be recorded in the accident book and they do this in my work placement by writing down all the details of the incident or emergency. The child’s medical records must be checked, and where appropriate acted upon and then parents/guardians will be contacted to pick up their child. If parents/guardians are not reached, the child’s emergency contacts will be call up. In my work placement all staff follow this by carrying it out the correct way. Afterwards the child should be regularly checked to see if any think is more serious. One record copy of the child will be taken to the doctors to make sure staff deal with  any recorded conditions and then the staff at the setting can keep a record of it and keep in contact with parents/guardians. Every childcare setting will keep a record of the child’s symptoms and the actions; regular checks on the child and each time the action was taken. The staffs at my work placement setting always have copies if an incident or accident happens and make regular checks which they keep an up to date record of the child. On discovering a fire or alarm sound, the room leader should then gather the register, visitor book and nursery contact numbers. Nursery stuff will help get the children out the setting by evacuating the building from the nearest fire doors. Once left building all staff and children line up at the assemble point and when lined up the room leader checks register to check all children are present. Afterwards the staff and children must not return to the building until the building has been declared safe by the fire brigade. Once this has been done, the children and staff can return back to the setting safely. An example of an illness would be vomiting or diarrhoea. An example of an accident would be a child bumping his/her head. An example of an emergency would be a fire. E3 Plan the appropriate care of a child aged 1 for a full day in the setting. E4 Plan the appropriate care of a child aged 3 years for a full day in the setting. E5 Describe the issues that affect the planning of a challenging environment for children. There are many issues that affect the planning of a challenging environment for children. The first issue can be identifying children’s needs as this can stop the practitioner from being able to meet their needs in planning the challenging environment for them to be able to learn in, develop and take risks. The second issue can be equipment; is it safe and suitable because this is vital for the children to be able to have in a challenging environment and age staged appropriate equipment. The third issue that affects the planning of a challenging environment may be the size or layout of the area. The Forth issue can be environmental factors such as  temperature, safety, ect†¦ It will have an effect on how effective the challenging environment is. The fifth issue can be that is there supervision and enough of it. The sixth issue that affects the planning of a challenging environment maybe type of setting. The seventh issue could be consulting children as is it developmentally appropriate. E6 Describe the initiatives which influence the provision of challenging environments for children. + C1 Evaluate how two initiatives contribute to the provision of an enabling environment for children. A national initiative which influences the provision of challenging environments for children is Swedish school as they apply the Forest education approach. This national initiative influences provisions because children are learning in a different environment which has more outdoor and physical development on the children. They aim to let children explore and understand stuff in the woods and forest such as everyday products from wood. ‘’a unique way of working with young people in a woodland setting, helping them to achieve small practicable tasks, learning about fire safety, woodland management etc. It complements the Early Years curriculum in particular but also supports the 5-16 curriculum. Disaffected children, those with emotional or behavioral difficulties or exhibiting challenging behavior are all seen to benefit and can be â€Å"turned around† by the Forest School experience. Forest School particularly suits the kinaesthetic learner (those that learn by doing) who fails to achieve in a formal school setting. These children are immediately engaged in the tasks set as they suit their way of learning.’’ (http://www.infomat.net/infomat/rd741/rd1/database/Forest_Education/index.asp) A local initiative which influences the provision of challenging environments for children is Montessori such as The Oratory Day Nursery in Burnham. This local initiative influences provisions because children learn independently through tasks to meet their skill for their age without a ‘’long-term disadvantage in their gross motor skills’’ (Thornes 2008 pg250) They aim to make children do many activities which involve the children to use their hands. The Montessori approach is use in my current setting Oratory Day Care Nursery by having set activities for the children to choose from then let children do the activity whilst the practitioners observe and only interacts in the activity to give guidance. This approach also say that ‘’First education of the senses, then education of the intellect.’’ (Thornes 2008 pg250). E7 Explain the importance of helping children to manage risk and challenge in their environment. It is important for children to be helped to learn to assess and manage risk and challenge. It will be necessary for the adult to teach the child the skills he/she will need to learn about assessing and managing risk and challenge. The child can also learn to understand consequences of the challenge and risk themselves. It also teaches them, limits and binderies that they can take with them throughout their everyday life. Most importantly it teaches to progress in their education by developing and doing these challenges and risks with the adults help. In my placement I have seen this happen by practitioners allowing for the children to explore the garden for themselves and one girl was climbing up the little hill for the first time and slipped and fell over. This was a challenge for her because she had to get up to the top and her risk was that she fell but next time she will climb up the hill, she would know the risk and what may happen next time. ‘’All children both need and want to take risk in order to explore limits, venture into new experiences and develop their capacities from a very young age and from their earliest play experiences. Children would never learn to walk, climb stairs or ride a bicycle unless they were strong motivated to respond o challenges involving risk of injuries.’’ (www.freeplaynetwork.org.uk/adventure/manage.htm) E8 show an understanding of diversity and inclusive practice. Diversity and inclusive practise need to be understood and carried out in every childcare setting. Therefore each practitioner should remember to treat every child and their families fairly without discrimination. This can  be done by for example letting all children join in an activity and not saying they can’t play because of their colour, size, shape, disability, ability in activity. They should also not stereotype both the children and families that they work with. By doing this, practitioners can meet each child’s needs as an individual and are allowing for the rights of the children and their families to take place. ‘’Childcare workers are very influential in the promotion of children’s attitude and values. Children will take their cue from adult responses and reactions. Because of their powerful role, it is important that staff take issues of equality seriously and do not ignore them.’’ (Thornes 2008 pg93) In my current setting Oratory Day Nursery, all staff carrying out and understand diversity and inclusive practice by following the equal opportunities policy and enabling that each child gets the chance to develop, learn and play as an individual in the setting with the right to be heard and valued. D1 Explain how legislation can support strategies to establish and maintain healthy, safe and secure environments in early years settings. There are many ways that legislation can support strategies to establish and maintain healthy, safe and secure environment in early years settings. The most important thing that supports a healthy, safe and secure environment is having policies and procedures as this will help everyone in the setting to keep to the same rules. Having CRB checks will also support a healthy, safe and secure environment because they help protect the setting from any vunarble adults. Another thing will be regular body inspections to ensure the setting is following the policies and procedures and working to the right standards but also to see if anything may need improvement into better or is not good practise. Staff ratios can support strategies to establish and maintain healthy, safe and secure environment as without having the right staff the setting shouldn’t open. Training for many different things such as fire procedures will allow you to be able to put your knowledge and practise into your own work to keep everyone safe and secure in the setting. Having the right/appropriate resources is another way to establish and maintain healthy, safe and secure environment. The last thing would be you the practitioner yourself as you are the person who will enforce that all these legislations are done to protect the children, parents, staff and other professionals as well the setting. D2 Explain how establishing a safe environment can support the procedures necessary for accidents, illness and emergencies. Establishing a safe environment, should support the procedures necessary for accidents, illnesses and emergencies. Accidents, illnesses and emergencies cannot be totally predictable or happen through a risk or harm in an event. Many accidents occur in a work place and the main victim is a child. This is due to risks of injury and illness through lack of cleanliness, another sick child in the group, etc†¦ Injuries in a group can occur from the children not bringing adequate protection and not using the equipment the correct way. It can also be due to the work place itself because their many be mislabelled equipment, unsafe condition, faulty or broken equipment. However the accidents and illness can be due to the adult because he/she may have failure to follow the procedures, lack of tanning or worker error. Therefore all this needs to be followed the correct way in order to prevent any of this happening. It can be done by making sure everyone in the setting implements and understands the policies such as Health and Safety Work act 1974 or RIDDOR and procedure of the setting, make sure all illnesses and emergency are written, carry out risk assessments regularly, sterilise the equipment, throw away any broken or faulty equipment,, looking after children’s hygiene and insure the children know the rules. This will then creat and establish a safe environment which is safe and less of a risk for everyone in the setting. B1 Consider possible ways to maintain the safety and privacy of children and to respect their wishes. Ensuring a safe environment that allows children to have safety and privacy with respecting their wishes can be done in many possible ways. One example can be going to the toilet as this can make the child feel uncomfortable to go in front of his/her friends and having small toilets with cubicles will make them feel safe and give them privacy. The practitioner however should check to see if there is anything that can put the child at danger when going to the toilet such as chemical produces. When doing all this it allows  the staff in the setting to see over the chid and maintain the safety. In my setting I have seen this happen because when a child goes to the toilet there are small cubicles that adults can see child at any time and keep the safety and privacy that is recurred in any childcare setting. Another example can be when protecting the child such as child’s welfare. This would mean having all practitioners, other professionals, parents and students to be aware that they most not discuss any thing that is not relevant to others and keep any paper work confidential. I have seen practitioners in my setting maintain the safety and privacy of children and respect their wish by listening to them, valuing them as an individual, following the policies on safety, Every Child Matters and the CACHE Statements of Values to best practise. A Discuss the effect on practitioners of meeting the care needs of children. There are many ways of how and why practitioners may be affected when meeting the care needs of children and the support available. Practitioners may feel unhappy to see a child leave after a long time of care for them, grief if child in care dies or is badly injured, feel terrible if they do not get on with a child or the child is not progressing and have a sense of failure. They may also feel anxiety when having to tell a parent bad news or anxiety when a child has to have the social care services involved with them. There can be support given for all these things that a practitioner may be affected by to meet the care needs of children. One way can be by leading the practitioner the right way. Local education authorities can also give support by helping the setting out and working with them to help and develop the child at the best interest to. Another way can be by getting advice from support advisors. The last way they can be supported is by other colleagues and work together to improve the outcome and met the care of the Child’s needs more effectively. This will therefore result in making the child feel happy and enjoy activities or coming to the setting. It will also make child want to work with the practitioner and gain a better relationship. It can not only have an result on the children but also on the practitioner themselves because will feel happy or overwhelmed they are able to work with the child to meet their care needs and then have a better  positive communicating relationship with parents about their child to fit the care needs of that child. In my current placement, I have seen practitioners have an effect when meeting the needs of children and one example of this was the practitioner feeling upset, frustrated because this 4 year old boy who was unable to count his number after having taught him many different ways such as having him sing a song to learn to count as this was some think the boy liked doing. Reference: * Beaver. M, et al (2008) Childcare and education Cache level 3 Cheltenham: Nelson Thorns * www.freeplaynetwork.org.uk/adventure/manage.htm 26th October 2011 * http://www.infomat.net/infomat/rd741/rd1/database/Forest_Education/index.asp 26th October 2011 * http://www.extension.org/pages/25767/preventing-injuries-in-child-care 1st December 2011