Through outsourcing and strategic alliances

At the beginning of 1992, the computer hardware industry had become completely vulnerable to commoditization. This resulted in a vicious price war which took market share away from premium priced brands like Apple.As a result, the company had to formulate new strategies in order to build and maintain a competitive edge. In this respect, Apple stood in a unique position because its level of vertical and horizontal integration was matched only by IBM’s and IBM was competing in a different market.One of the strategies that the management undertook was to open its system to other standards and expand market share that way. This strategy was implemented through outsourcing and strategic alliances.Through outsourcing and strategic alliances, the company was able to not only minimize costs but also to differentiate its product line in order to widen its market appeal. However, as mentioned before, Apple stood in a unique position to exercise a considerable level of impact on the indu stry whether competing with a closed system or an open-ended one.Porter’s five forces before opening the systemWhen Apple had first started selling its computers, the threat of new entrants had been minimal because the company was implementing a proprietary technology. However when IBM entered the industry with its open-ended systems, most manufacturers could manufacture clones at a fraction of the cost.This increased the threat of new entrants. Because the threat of new entrants was high, the threat of substitute products was also high. In this context, Apple began to lose market share because even though it was generating considerable value through packaging hardware and software together, the fact that it manufactured all the components in-house meant that the company was forced to sell its products at a premium price.This was a severe disadvantage for the company as competitors could offer the same level of features in their products at a fraction of the cost. Because of the high threat of new entrants and substitute products, the threat of competition was also very high.The competitive strategies that major players in the industry were implementing at the time were based on both hardware and software. In this respect, Apple’s graphical user interface had gained considerable market share because of its ease of use. However Microsoft had also been developing the Windows operating system which had competing features and which had the additional advantage of greater market penetration.Competitive strategies in the computer hardware industry in the mid 80s started to focus more on software as hardware was becoming increasingly commoditized. This meant that the only way for hardware manufacturers to develop a unique selling proposition was to package more software features into the hardware.The hardware manufacturers could not incorporate the Apple operating system because it was not compatible with any hardware specifications other than those man ufactured at Apple. This resulted in increased market penetration for Microsoft’s operating system. However because Apple was developing a proprietary technology, it could not take advantage of the fast growing size of the market. As a result, the company was forced to confine its marketing and selling operations to the existing clients.However the availability of low priced competitor products meant that Apple was losing even its existing customers to the clone manufacturers. In this respect, the most profitable customer group was that consisting of corporate clients. However this segment of the market was price sensitive and therefore prioritized cost considerations ahead of other product features.This was the reason why Apple had been experiencing decreasing returns at the beginning of the 90’s. In spite of the nature of its organization structure which enabled it to offer complete solutions, Apple began to suffer a distinct disadvantage from its high prices.The fac t that there was a high threat of new entrants and substitute products resulted in a high threat of bargaining power from the customers. Clone manufacturers like Dell did not have to engage in extensive research and development activities in order to manufacture new products. Instead they manufactured products based on standards pioneered by IBM.As a result, cost of production was considerably lower for these companies than they were for companies like IBM and Apple which had to conduct capital-intensive research and development activities periodically in order to bring out new product lines. With Dell for example, the competitive advantage lay in its unique distribution structure which cut costs further. This enabled clone manufacturers to offer a wide variety of product offerings, in the process facilitating a considerable level of bargaining power for the buyers.The bargaining power of suppliers was medium because most hardware manufacturers tended to maintain a joint venture fra mework in developing their products.For example, IBM had a partnership with Intel for sourcing the latter’s microprocessors. This partnership meant that manufacturers and their suppliers did not have to negotiate prices every time they developed a new standard. Therefore the industry was favourably positioned in terms of the bargaining power of suppliers for those manufacturers who maintained open standards.

Moving to Another Country Essay

Tradition is existing knowledge. A tradition is a group of related ideas that have lasted for a long time. In some cases people have spent that time trying to improve the ideas. We’ll call that a dynamic tradition because it changes over time. In other cases, the focus has been on keeping the tradition exactly the same over time. We’ll call that a static tradition because it does not change. Although these approaches are contradictory, some traditions are mixed. Dynamic traditions are important because they contain some of our best knowledge. Today, they contain only the best ideas any participants have thought of in the whole history of the tradition. I don’t mean they are perfect, but if they missed a good idea, it was despite people’s efforts, not intentional. They do a pretty good job of gathering the best ideas, and keeping those around, and discarding ideas that are discovered to be mistaken. The reason dynamic traditions are especially valuable is the sheer amount of thought, criticism and error correction that has gone into them from many people. Just because traditions contain valuable knowledge doesn’t mean they are always right. Sometimes they aren’t. I shouldn’t defer to traditions just because a lot of smart people didn’t see any way to improve them further. I should defer if I don’t see any way to improve them further. If I make up a new idea, and I don’t see any way to improve it further (in 20 minutes of thought), then it’s not particularly reliable. I could easily have missed something. With a tradition, perhaps thousands of people put in twenty minutes of thought, and some others put in years, so even if I don’t see any way to improve things, and even if I don’t know much about the subject, it has an advantage over just making something up myself. All the knowledge in traditions can be intimidating . And no one has time to carefully and critically go through all the details of all the traditional knowledge they use. That’s OK. But one should bear in mind two things. First, if something goes wrong — if there seems to be a problem — then relying on tradition isn’t good enough. It’s not working, and you’ll need to tweak something or find another tradition. And second, a thoughtful person should critically evaluate some traditions. It’s your choice which, but everyone ought to be good at something and have the experience of trying to improve some knowledge. Everyone should put some serious thought into some area. There isn’t much point to life if I don’t seriously think about some parts of it. In the case of a disagreement, an  appeal to tradition is invalid. The tradition might be wrong and someone thinks it is. To address that disagreement, I have to consider their criticism of the tradition, any alternative ideas they have, and any arguments in favor of the traditional idea, and then try to work out what is true. Traditions containing people’s best ideas of the past won’t always be the best ideas anyone thinks of in the future. The biggest value of traditions is they can often give useful ideas that are not controversial, or starting points which partially solve problems. In a disagreement, although we can’t say, â€Å"This is true because a lot of smart people didn’t see anything wrong with it, and who are you to say they missed something?† the fact that something is a tradition is not irrelevant either. Dynamic traditions have, over the years, faced a lot of criticism. They often already include explanations of why common criticisms of the tradition are mistaken. Major traditions have existing literature that provides arguments and ideas on the subject. This literature can answer many disagreements, which are often made in ignorance. When we find something wrong with a tradition, if at all possible we should improve the tradition, not abandon it. We should seek a way to modify the tradition but also retain existing knowledge. To keep the most existing knowledge, our change should be as small as possible to solve the problem. If we were to start over from scratch, we may avoid the flaw we found, but we’re not perfect and our new ideas will contain other flaws. And new ideas won’t have the benefit of decades or centuries of people trying to find and correct flaws. We should consequently be respectful of tradition even as we find errors in it, and try to improve it with new ideas of our own. Static traditions are different. Although they’ve been around a long time, no one has been trying to find mistakes in them, so they aren’t very useful. Nor are they innocuous. Consider: why does the static tradition still exist? Why didn’t it disappear after its original advocates died? With a dynamic tradition, it’s passed on to the next generation because people find it useful, and teach it. A static tradition, too, must have some mechanism for being passed on. But it canâ€⠄¢t be that people voluntarily learn it due to its usefulness. Because it never changes, and never corrects errors, it’s not very useful. Instead, people must in some way be tricked or fooled into it, or indoctrinated, or forced, or brainwashed. Often they are pressured, and made  to feel bad, sinful or guilty if they do not follow the tradition. But controlling people’s emotions is difficult. Because people are creative and will try to defend themselves, it takes a lot of knowledge to reliably control or manipulate them. Where does that knowledge come from? Static traditions are not actually entirely static. The main ideas, doctrine or dogma is kept constant. But the way of passing it on changes. The more people try to preserve the tradition unchanged, and make sure it will last forever, the more creativity they put into mechanisms for transmitting the tradition to the next generation. All traditions face a selection effect. For a tradition to last, it has to be passed on from older people to younger people. But only so many ideas can be taught to the next generation. Children are only in school, and in their parents’ home, for so many years. The amount of ideas is large, but it’s limited. Only a certain amount of tradition can fit. Only the ones that are better at being passed on will make the cutoff. D ynamic traditions compete by being as useful as possible. Thus the selection effect pushes them to be better and better. They try to be true, and people like the truest ones so much that they teach them to children. Static traditions compete differently. They can’t compete with good ideas directly, so they use other approaches such as manipulating or controlling people. In short, in some way they disable the person’s creativity so he doesn’t realize the tradition is low on useful truth content, and doesn’t think of alternative ideas against which a static tradition can’t compete. The selection effect for static traditions makes them worse, not better. Any static tradition that fails to create a permanent blind spot in the person runs a serious risk that one day he’ll realize it’s not a great tradition and doesn’t have a lot of useful knowledge. And if he realizes that, whether he ever changes his mind or improves himself, what he won’t want to do is teach it to his kids. There will never come a time when his children have some problem or qu estion, and he thinks if he teaches them this tradition it will help them, since he knows it is not useful. Traditions are important because they contain our best knowledge collected over the years. But they can also be dangerous. Static traditions that induce blind spots in people and are useless at everything except getting themselves taught to children. It is up to us to consider which traditions are which.

Prejudice And Discrimination Article Essay

One of the most interesting places to visit in this world is India. Located in South Asia it is officially called the Republic of India. India is well-known for being the second most populous nation in the world next to China.   There are many diverse ethnic groups among the people of India. The six (6) main ethnic groups are Negrito, Proto (Australoids or Austrics), Mongoloids, Mediterranean or Dravidian, Western Brachycephals and the Nordic Aryans (â€Å"People of India,† n.d.). India is also known to be the country from which one of the world’s largest religious congregations has originated, Hinduism. Thus, â€Å"about 80% of the population is Hindu, and 14% is Muslim. Other significant religions include Christians, Sikhs, and Buddhists. There is no state religion (â€Å"India,† n.d.).† India and the large number of its population is home to a vast array of culture and people, and a distinct classification of its Hindu believing population of the structural and hierarchical classification of its own members known as the caste system.   Ã¢â‚¬Å"The caste is a closed group whose members are severely restricted in their choice of occupation and degree of social participation. Marriage outside the caste is prohibited. Social status is determined by the caste of one’s birth and may only rarely be transcended† (â€Å"Caste,† n.d.). The caste system is an intricate classification of its population and many people can directly associate the said term with the â€Å"untouchables† or the Panchamas or Dalits who are the lowest ranked within the system and are tasked to perform the most menial tasks of the community (â€Å"Caste,† n.d; â€Å"Dalit,† n.d.). Even though the Constitution of the Republic of India disallows â€Å"untouchability† the caste remains to be very influential in Indian Society (â€Å"India,† n.d.). Likened to other countries or states, India is also home to its own indigenous people, one of which is the so called Adivasis or literally the â€Å"original inhabitants† who comprise a substantial indigenous minority of the population of India.   These Indian tribes are also called Atavika (forest dwellers, in Sanskrit texts), Vanvasis or Girijans (hill people, e.g. by Mahatma Gandhi) (â€Å"Adivasi,† n.d.).† Together with the Dalits, the Adivasis form the most discriminated group of people in the Indian community. These groups of people are said to be constantly subjected to ridicule and shame all over India in a constant basis. A study conducted by Mayell, H. (2003) has chronicled some atrocities committed particularly against the Dalits who are historically the only   ones referred to as â€Å"untouchables† by citing that â€Å"Statistics compiled by India’s National Crime Records Bureau indicate that in the year 2000, the last year for which figures are available, 25,455 crimes were committed against Dalits. Every hour two Dalits are assaulted; every day three Dalit women are raped, two Dalits are murdered, and two Dalit homes are torched.† Furthermore, she stated that â€Å"No one believes these numbers are anywhere close to the reality of crimes committed against Dalits. Because the police, village councils, and government officials often support the caste system, which is based on the religious teachings of Hinduism, many crimes go unreported due to fear of reprisal, intimidation by police, inability to pay bribes demanded by police, or simply the knowledge that the police will do nothing (Mayell, 2003.)† The Dalits can trace its being oppressed from the fact that India being largely a country of people adhering to Hindu beliefs from which the caste system is derived, are the people who are supposed to be the untouchables or, as discussed, ranked at the lowest. As a result of this, naturally the Dalits are can be rightfully perceived and treated the way religion, tradition and history has treated them, which is sadly bordering on slavery.   However, without passing judgment, albeit being quite possibly insensitive, the plight of the Dalits can easily be viewed as part of the natural made up of the Hinduism belief from which any non-Hindu society member can not and should not question. Religiously speaking, based on the Hindu belief a Dalit is a person who has does not have any â€Å"varnas†. Varna refers to the Hindu belief that most humans were supposedly created from different parts of the body of the divinity Purusha. The part from which a Varna was supposedly created defines a person’s social status with regards to issues such as who they can marry and which professions they could hold (â€Å"Dalit,† n.d.). For their parts, the Adivasis being the original dwellers of India had their own unique way of societal structure, culture and tradition which has like most indigenous tribes all over the world become outmoded as the modern world around them evolved. The discrimination and pitiful situation of the Adivasis are not directly rooted to Hinduism but possibly to a mix of modernization and the former. This possible mix can not be easily discounted knowing the fact that most people in India are Hindu or believers of Hinduism. It is important to stress that the Adivasis as a classification within the Indian population is not brought about or classified as such by Hinduism per se or as part of its caste system. As discussed, the Adivasis is an ethnic group who are original inhabitants of India possibly even prior to the birth of Hinduism whose culture has failed to completely cope up with the modern world. Thus, Bijoy, C. (2003) said â€Å"relegating the Adivasis to the lowest rung in the social ladder was but natural and formed the basis of social and political decision making by the largely upper caste controlled mainstream. The ancient Indian scriptures, scripted by the upper castes, also further provided legitimacy to this.† Hence, even though that the Adivasis can mostly trace their own problems from the failure of their culture and practices to conform to the modern world, as contrast to that of the Dalits, which can easily trace their own problems from its religion, the Adivasis by simply being not well-equipped enough to cope with the modern world are easily lumped together with the Dalits. As a result, together the Dalits and Adivasis form the most oppressed people in India who are more known as the untouchables. According to Tarique (2008) it is not only a struggle for dignity and self-respect that these poor groups of Indian people are fighting for. They are also engaged in the â€Å"struggle for their rights and entitlements for land, access to natural resources, livelihood, employment and to market in general. (Tarique, 2008.)† It is sad to note that these said factual happenings in a modern world such as ours are still happening.   It is but a semblance of irony knowing that the problems that these people are facing and fighting everyday are rooted to one of man’s most sacred possessions, his religious beliefs, which in itself has taught us notions of goodness and the proper way to which we should live our lives; religion, from which ideas of turning away from sin and helping one’s own fellowman being the exact cause of a structuralized system of discrimination and oppression.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Strictly speaking it is difficult to question the plight of these untouchables more so with the Dalits than the Adivasis because the former’s pitiful situation can be justified by the fact that society has adapted it as part of its religious beliefs. An outsider or any non-Hindu looking into the said situation may not have the proper perspective to look into the plight of these untouchables.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   However, it is without a doubt that when one adapts the globally accepted notion of humane treatment, the sorry plight of these untouchables more so that of the Adivasis who are clearly not directly   Hindu in origin, but more of an â€Å"accidental untouchables†, are well   below the world standards of humane treatment.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Today as the world has chosen to progress and adapt globally its own evolving norms of legal and illegal, acceptable and taboo, good or bad, the world has given more emphasis to equality among ALL MEN without qualifications based on race, gender, birth, color of skin and etc. It is without a doubt that the untouchables of India both the Dalits and Adivasis are victims of a society who have failed to progress with the times.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Adapting the global perspective and the trend to which modern world is predominantly practicing, today’s world would put any country into shame when one does not act upon or even question the sad and pitiful plight of the Dalits and the Adivasis, the so called untouchables, the accidental slaves of society, people who are as early as birth are discriminated.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In fact as already pointed out, it shall be everyone’s dream to realize and fulfill the perceived mandate of the Indian Constitution itself that outlaws this form of treatment of the so called untouchables. Perhaps only then one can give more emphasis and be prouder to claim India as a country truly rich in culture and proud history. References: Adivasi. (n.d.). Wikipedia, the free encyclopedia. Retrieved January 8, 2008, from Reference.com website: http://www.reference.com/browse/wiki/Adivasi Bijoy, C. (2003). The Adivasis of India. A History of Discrimination, Conflict and Resistance. PUCL Bulletin. Retrieved January 8, 2008, from http://www.pucl.org/Topics/Dalit-tribal/2003/adivasi.htm Caste. (n.d.). Columbia Electronic Encyclopedia. Retrieved January 8, 2008, from Reference.com website: http://www.reference.com/browse/columbia/caste Dalit. (n.d.). Wikipedia, the free encyclopedia. Retrieved January 8, 2008, from Reference.com website: http://www.reference.com/browse/wiki/Dalit India. (n.d.). Columbia Electronic Encyclopedia. Retrieved January 10, 2008, from Reference.com website: http://www.reference.com/browse/columbia/India Mayell, H. (2003). India’s â€Å"Untouchables† Face Violence, Discrimination. National Geographic News. Retrieved January 9, 2008, from http://news.nationalgeographic.com/news/2003/06/0602_030602_untouchables.html People of India. (n.d.). People of India. Retrieved January 9, 2008, from http://www.webindia123.com/india/people/people.htm Tarique (2008). Fact Finding Mission on the Violence against Dalit and Adivasis Kundahamal District. India News. Retrieved January 10, 2008, from http://www.indianmuslims.info/news/2008/jan/09/fact_finding_mission_violence_against_dalit_and_adivais_kundahamal_district.html

Answer q Research Paper Example | Topics and Well Written Essays - 250 words

Answer q - Research Paper Example The current managers did not seem to realize there was a current problem with theft. When she mentioned it to another student employee, he just shrugged it off. Should she tell on the others and risk being fired or should she wait it out until she was a manager and take care of it herself? Some of the strengths of the company are that they are a student run business on campus that offers convenience for food for them. The weaknesses are that they put other students in charge of business and they sometimes do not have training and since they are around peers, they are not seen as authority figures. Opportunities are that students can obtain management experience while in college so they might have better chances for jobs after graduation. They are in a hands-on learning situation. The threats of the company are that some authorities are not right there so cannot be looked to for help and the main managers are oblivious to the issue. As a consultant, in order to make the business more profitable, would be to hire one full time manager who is not a student. Let there be a few student managers that are part-time. All employees should have to follow a code of conduct and they would be let go if they did not follow it. People who notice problems should be rewarded and encouraged to report them to upper staff

Relevance of Standard Costing & Variance Analysis Essay - 1

Relevance of Standard Costing & Variance Analysis - Essay Example From this paper it is clear that  the standard cost is a predetermined unit cost i.e. the price and standard amount of each resource to be utilized in manufacturing a product and providing a service. A variance is the difference of actual cost incurred and expected standard cost. The variance analysis involves breakup of total variance to explain how much variance is caused by difference in use of resources from the standard usage quantity and how much variance is caused by the difference in prices of resources from the standard costs. The standard costing can be advantageous only if the cost standards are carefully established and prudently used. The use of standards solely for placing blame can have negative impact on management and employees. The major advantages include better management planning, promotes economy by making the employees understand importance of cost reduction, setting selling price, management control, highlights variances in management by exception and simpli fy the inventories’ costs reducing clerical costs.As the study stresses the standard costing is suited to the control of variable and direct costs but not fixed and indirect costs, the usefulness of standard costing has been questioned because the in recent times the overhead costs have become the relevant factory costs whereas the importance of direct labour costs has diminished.  JIT is an inventory system which works towards keeping zero inventories.

Management issues for the family-run business Essay

Management issues for the family-run business - Essay Example Institute for Family Business (IFB), shows that up to 65% of all businesses in the UK are family-owned and amounts to 42% of private sector employment. Family businesses provide work for more than half of the private sector labor force. There are clear and attractive compensations, since any venture will profit from the relations of faith and dedication among family members. Nevertheless, a family business yet requires be running and managing with an objective and specialized manner. The family businesses form a vital role running the financial system of the country. They are mostly common in the micro business segment - firms with less than ten workers. But they are as well widespread in the small and medium enterprise (SME) segment.1 Further, few of the very leading private and well-known UK businesses are family firms, for example JC Bamford (usually branded as JCB), Clarks Shoes and Associated British Foods. The family enterprises vary considerably in size and as well vary in the level of family participation in the business. A number of families may participate daily in the management of the business, at the same time as others may take a more liberal approach with the participation of specialized non-family administrators. Exact explanations of a family business differ, however the enterprises ought to meet a few conditions concerning their ownership or management. A generally accepted explanation, set up by the Finnish Ministry of Trade and Industry in 2004 2, is that: The Family Entrepreneurship Working Group should have the majority of votes held by the person who established or purchased the firm or their spouses, parents, child or child’s direct heirs. And also minimum one member of the family is involved in the management of the firm. In the case of a scheduled business, the individual who established or purchased the firm or their families enjoy 25% of the right to vote through their share investment and there is minimum one family member on the

Management skillsDiversity within in the Workplace Article

Management skillsDiversity within in the Workplace - Article Example The manager should be able to makeup teams comprising of people with various differences and nature theses relationships to create cohesiveness. The manager should also be a good problem solver because conflicts are bound to occur. The manger should be versed in social psychology so that he can be able to establish how different people act and think. He should be a good negotiator so that conflicts in the workplace are solved promptly. People’s perceptions of each other affect their relations and for an organization to be run effectively, the management must be able to assess diversity by ensuring communication, adaptability and flexibility to accommodate change. A manager should be a good communicator so that he passes this skill to the employees. Communication in the workplace is also pivotal in ensuring that diversity is directed towards achievement. Communication between employees will make them learn about each other and the values they uphold, and this will increase cohesiveness because conflicts will be easily managed. Therefore, mangers need to know how to manage diversity by learning to work with people from across cultures and impact this knowledge on employees, and this will be beneficial in ensuring organizational success. Globalization has made people from different cultures to be employed in the same organization and there is need to integrate these cultures so that there is easy flow of operation. the manager should be able to set out rules that will ensure the different cultures blend in together for the common good of the organization (Shakhray, 2009). The manger should be aware of diversity training during recruitment, and this will ensure that employees learn to work and accommodate people from cultures that are different from theirs. Managers need to focus on diversity and look for ways of making their organization totally inclusive, and this will increase competitiveness and

Accounting Theory Essay Example | Topics and Well Written Essays - 500 words - 2

Accounting Theory - Essay Example Critical theorist says that disclosing social responsibility information could be a waste if not accompanied by major changes in how the society is structured. A critical perspective on accounting is focused on providing a medium for the increasing number of accounting practitioners and researchers who understands that the traditional practices and theories are not suitable for the problems arising in the current environment. Critical accounting research scrutinizes how individuals react to the different accounting disclosures. Critical perspective can be described as a research that focuses on the function of accounting in maintaining the advantaged positions of those in authority and undermining the authority of those with no capital. Critical perspective emphasizes on questioning whether certain approaches of accounting should be applied. Some accounting studies have actively advocated for the critical theory of accounting. The strongest known advocates have been Richard Laughlin and Jane Broadbent. In this theory, accounting is viewed as a social science as it demonstrates a more critically oriented method. Critical accounting theory a cknowledges the human aspect instead of claiming the intellectual status. Critical perspectives of accounting take a broad variety of stances from highly conventional to extremely radical with an aim of improving the accounting practices. This theory also makes the accountants understand more on social, economic and political impacts of their practice. A critical perspective of accounting is said to be cultural conscious and aware of the significance of the history. Languages are made in the societies, and the effect of culture is vital to understanding a language. With this understanding, there is a realization that societies are regulated by conventions and rules. Therefore, it is important to find out how individuals interpret conventions and rules (Broadbent &

Comparing Different Linux Vendors Research Paper

Comparing Different Linux Vendors - Research Paper Example It is based on Unix. Linux was developed in collaboration with many different companies, thus, all these companies are responsible for its development. The development and research costs are shared amongst the partners and other competitors. As many companies are involved, there is lot of innovation in this operating system. Here we will discuss three major distributors of Linux, namely: Ubuntu, Fedora and Linux Mint. It is also important to understand their advantages and disadvantages in servers and workstations. Ubuntu Server and Workstations – Installation of Ubuntu is easy which is beneficial for business. Its foundations are built on the bases of Debian. This server is fast and delivers high performance, which makes it highly reliable. It is composed of many new server based applications like â€Å"LAMP, file server, firewall and thin client support† â€Å"With LAMP it is easy to setup a web server, database applications and dynamics websites.† â€Å"It in cludes the use of thin clients using LTSP (linux terminal server project). Thus saving the cost on expensive hardware to keep up to date with the ever growing pc demands† (Ubuntu Server, 1998, para.4). Ubuntu is free. Strong firewalls prevent the server from any attacks, thus making it secure. It provides high security. It has a â€Å"bunch of applications like Open Office, alternative to Microsoft Office, web browsers, email clients, games, audio & movie players, image editors and many more† (Ubuntu Workstation, 1998, para.2). Applications can be downloaded free of cost. It is stable and there are rarely any errors or system crashes. It is a secure operating system as there are no viruses or any other applications that could harm the computer. Ubuntu is not easy to use. It has an online community, which offers support and provides updates for the improvement of the system. Updates of Ubuntu are available every six months. Ubuntu’s approach towards new technologi es is conservative, unlike Fedora, which rather supports new technologies. Ubuntu is found to have hardware complaints, which makes it less stable than Fedora. It requires a reasonable space to work efficiently as it is large. Fedora Server and Workstations – Fedora is an open source and, therefore, it can be downloaded, installed and shared for free. It has a wide range of free applications available. Free from virus, thus, no hassles with antivirus software and spywares. A powerful operating system, which is both efficient and secure. Consists of new features making it more flexible and stable. It is reliable as any kind of hardware failures are efficiently handled without affecting the entire operating system. Help docs are provided and there are communities that provide assistance when needed. Updates are released twice in a year, so no long wait is required to achieve latest software. Frequent updates are also a drawback as it makes it look less stable. It may be a good choice but a new user may find it hard to use. â€Å"Ruby,Python,Database Server: MySQL 5.0.67,Mail Server: Postfix ,DNS Server: BIND9 (chrooted) ,FTP Server: proftpd,POP3/IMAP server: Dovecot,Webalizer for web site† (Timme, 2012, para.2). If some issue arises, the user has to resort to the command line in order to complete the task In case of software updates with two packages, it is difficult to trace the unwanted package. There is a

Iran and Its Pursuit Of Nuclear weapons Research Paper

Iran and Its Pursuit Of Nuclear weapons - Research Paper Example As such, the Iranian government continued with their projects to generate energy meant to serve its population that was more than 75 million, where political and other aspects took over the thinking portion over nuclear technology. Following this, political forces came into being, where they viewed nuclear technology as more than a technology meant to generate energy and power for its people. This became the driving force away from mere energy production and into production of nuclear weapons, a project that America and other world powers are against. Estimates to nuclear capability in recent times show that Iran stands a good chance to develop their uranium and include it in the production of weapons of mass destruction. This is especially so for nuclear weapons, as there is evidence in recent suggesting that the country stands a chance to begin uranium enrichment. Reasons for the pursuit of nuclear weaponry by Iran lie in the attempts by American to impose their opinions and ideolo gies on Iranians through their support for their initial nuclear project. This created the idea that the Iranians were being sidelined in their own land and in their own projects in that to them the Americans intended to take over that which belonged to them. With this in mind, the main cause that can be attributed to the deviation from the original plan can be seen in the prisoners of insecurity. This is because with nuclear power, where power stands for nuclear capability in weapons, the Iranians stand a chance to have power to eliminate threats and not be victims of world powers influencing them. In addition, the move from nuclear power to pursuits of nuclear weapons can be attributed to an aspiration of prestige, where Iran and Iraq have a bitter rivalry for the control or power in the Persian Gulf region (Dorraj 326). With nuclear capabilities, Iran stands a chance to overcome other regional and international powers, where it can manage to negotiate its way into and out of deal s that are not suitable. This also translates to international recognition as a nuclear arsenal has helped some countries into positions of power on an international scale as it also depicts the presence of technological advancement. The reasons for Iran having pursuits for nuclear weapons can therefore be attributed to image of Iran towards the outside world and the international community, as well as the state of security of the country from external forces. The consequences of Iran and its pursuits of nuclear weapons have been sanctions against Iran, where policy makers have been formulating sanctions to curb the spread of the nuclear pursuits and prevent its development. Sanctions have been employed by the US, where it has used its foreign policy to ensure that it threatens Iran against developing nuclear weapons, where its economic ability has been the main weapon. As a result, the United States has sanctioned Iran by curtailing political, economic and diplomatic relations as i t is considered to use its nuclear capabilities to fund and support terrorist activities, as well as oppose Israel (Cohen 10). The sanctions, however, have not worked to ensure that the pursuit ceases as the sanctioned aspects of Iran have been taken over by other countries that have sought to take over that which ten Americans and other countries t

Lefebvre's Ideas about Social Space Imply a Re-Evaluation of the Role Essay

Lefebvre's Ideas about Social Space Imply a Re-Evaluation of the Role of Graffiti in the Politics of City and Urban Life - Essay Example There exists a long history of various cultures leaving symbols and writings of their experiences from the age of the Pharaoh’s Pyramids to Hadrian’s Wall, the Byzantium Empire, and the middle ages. However, it is only half a century ago when graffiti started being linked to the culture of the urban youth as well as the political beliefs of the social movements of the 1960s. Graffiti writers from New York and Philadelphia began to create new and innovative styles with new materials and writing styles. They also made use of increasing spaces in the urban areas. Graffiti soon grew to be a global phenomenon. It is now a common sight in numerous urban areas all over the world. It adorns or disfigures public areas, depending on the viewpoint of the person analysing the works. Graffiti has sometimes been viewed as a disfigurement of the city walls. However, many people simply consider it is a modern way used by the youth to express their viewpoints. Henri Lefebvre separated s pace into three groups: representations of space, spatial practice, and representational space. According to his ideas, every piece of art that is included in the public space will slowly integrate itself into that space, and frequently ends up being a part of that very public space in such a way that it cannot be separated from that place. The import of public art lies in the fact that the more it is integrated, the more effectual the public space will be made, and then both its functional and representative aspects are confirmed. Its importance is also found in its political as well as activist functions, since public art usually denotes the significance of public space. Any work of art that is in the public space tends to acquire its significance when it is recognised as a part of the public. The art works that created in and for the public space, for instance graffiti, are the types of artwork that take into account the framework of urban. They are deemed to be a part of the civ ic realm as they are meant for the public spaces as well as the citizens of the location in which they were created. In that sense, they cannot be differentiated from their public spaces, where by integrating themselves in the public space, they create the identity of that area. It is a common thing for citizens who live near areas that are filled with graffiti start to identify the area by the different drawings on the public walls. The aspect of the ‘lived’ dealt with the third branch of Lefebvre’s triad in comprehending the social space, where he associates it with the representational space. The representational space speaks to the more unstructured and intimate interactions of citizens in its surroundings. Whereas human interventions such as graffiti are delineate the connection that the citizens have with their capital, the theory of Lefebvre’s triad goes further in illuminating that the notion of ‘lived’ has an inclination of going to t he scheme of non-verbal symbols. In that sense, Lefebvre affirmed that this concept stimulates the imaginations that citizens who view them have about themselves (Zukin, 1995). Lefebvre’s theory explored new methods of comprehending of the prevailing procedures of urbanisation, as well as the conditions and outcomes on any scale of the public reality; whether from the operations of daily life, through the municipal scale, to the international flows of capital, people, ideas, and information (Lefebvre, 1996). Concurrently, this premise has the potential to connect urban design and research operations because of its programmatic investigation of the connection between the critique of urbanism, the urban study, and the visualisation of a new kind of

Theory Analysis of Critical Theory and Feminist Theory Essay Example for Free

Theory Analysis of Critical Theory and Feminist Theory Essay Critical theory and Feminist theory are both complex in terms of its structure and principles. Critical theory, according to Max Horkheimer in his work titled Traditional and Critical Theory, is a kind social theory oriented toward analyzing the society and in effect and altering society unlike the traditional theory which focuses only in recognizing, elucidating and giving details about it. Horkheimer furthered; â€Å"critical theory must be explanatory, normative and practical at the same time(Bohman, 2005).† That is, one must be aware and be able to identify things that are not in the right flow in a society, must be able to take actions to adjust or modify it. Critical theory being normative as further defined by Sailer must â€Å"be able to carry about alteration in the situations that influence our lives(Seiler).† Critical theory is a philosophical approach that includes feminist theory. Feminist theory seeks to discover the perception of gender. As explained by Sailer, â€Å" Feminist theory assumes that gender is an all-encompassing category for perceiving human experience. The case is that gender is a generally constructed classification of values, identities, and activities. It also emphasizes that sex is biologically determined. It intends to defy the established gender assumptions of society as well as to attain further beneficial ways for women and men to co- exist(Seiler).† The Feminist Theory stress out that the domination of men considerably affects the women. It radically deafens the society about the contribution, roles, and values of the women that leads to the existence of gendered inequities that seems to inundate the cultural way of living. Critical theory recognizes that the ability to understand can lead a change while feminist theory, a philosophical approach of critical theory, sees that the means of thinking of feminine is different from the masculine. Critical Theory(2005). Seiler, R. M. Human Communication in the Critical Theory Tradition. Retrieved November 1, 2006, 2006, from http://www.ucalgary.ca/~rseiler/critical.htm

Sexually Transmitted Diseases (STD) Prevention Strategies

Sexually Transmitted Diseases (STD) Prevention Strategies Until the 1990s, STDs were commonly known as venereal diseases: Veneris is the Latin genitive form of the name Venus, the Roman goddess of love. Social disease was another euphemism. Public health officials originally introduced the term sexually transmitted infection, which clinicians are increasingly using alongside the term sexually transmitted disease in order to distinguish it from the former. According to the Ethiopian Aids Resource Center FAQ, Sometimes the terms STI and STD are used interchangeably. This can be confusing and not always accurate, so it helps first to understand the difference between infection and disease. Infection simply means that a germ-virus, bacteria, or parasite-that can cause disease or sickness is present inside a persons body. An infected person does not necessarily have any symptoms or signs that the virus or bacteria is actually hurting his or her body; they do not necessarily feel sick. A disease means that the infection is actually causing the in fected person to feel sick, or to notice something is wrong. For this reason, the term STI which refers to infection with any germ that can cause an STD, even if the infected person has no symptoms-is a much broader term than STD. The distinction being made, however, is closer to that between a colonization snd an infection, rather than between an infection and a disease. Specifically, the term STD refers only to infections that are causing symptoms. Because most of the time people do not know that they are infected with an STD until they start showing symptoms of disease, most people use the term STD, even though the term STI is also appropriate in many cases. Moreover, the term sexually transmissible disease is sometimes used since it is less restrictive in consideration of other factors or means of transmission. For instance, meningitis is transmissible by means of sexual contact but is not labeled as an STI because sexual contact is not the primary vector for the pathogens that cause meningitis. This discrepancy is addressed by the probability of infection by means other than sexual contact. In general, an STI is an infection that has a negligible probability of transmission by means other than sexual contact, but has a realistic means of transmission by sexual contact (more sophisticated means-blood transfusion, sharing of hypodermic needles-are not taken into account). Thus, one may presume that, if a person is infected with an STI, e.g., chlamydia, gonorrhea, genital herpes, it was transmitted to him/her by means of sexual contact. The diseases on this list are most commonly transmitted solely by sexual activity. Many infectious diseases, including the common cold, influenza, pneumonia, and most others that are transmitted person-to-person can also be transmitted during sexual contact, if one person is infected, due to the close contact involved. However, even though these diseases may be transmitted during sex, they are not considered STDs. Primary STD Bacterial Chancroid Granuloma inguinale or (Klebsiella granulomati) Gonorrhea (Neisseria gonorrhoeae) Syphilis (Treponema pallidum) Fungal Tinea cruris, jock itch, may be sexually transmitted. Candidiasis, yeast infection Viral Viral hepatitis (Hepatitis B virus)-saliva, venereal fluids. (Note: Hepatitis A and Hepatitis E are transmitted via the fecal-oral route; Hepatitis C (liver cancer) is rarely sexually transmittable and the route of transmission of Hepatitis D (only if infected with B) is uncertain, but may include sexual transmission.) Herpes simplex (Herpes simplex virus 1, 2) skin and mucosal, transmissible with or without visible blisters HIV/ AIDS (Human Immunodeficiency Virus)- venereal flu. HPV (Human Papilloma Virus)- skin and mucosal contact. High risk types of HPV are known to cause most types of cervical cancer, as well as well as anal, penile and genital warts.. Molluscum contagiosum (molluscum contagiosum virus MCV)-close contact Parasites Crab louse, colloquially known as crabs or pubic lice (Phthirius pubis) Scabies (Sarcoptes scabi) Protozoal Trichomoniasis (Trichomonas vaginalis) Sexually transmissible enteric infections Bacterial Shigella Campylobacter Salmonella Viral Hepatitis A Protozoan (parasitic) Giardia Cryptosporidiosis Above pathogens are transmitted by sexual practices that promote anal-oral contamination (fecal-oral). Sharing sex toys without washing or multiple partnered barebacking can promote anal-anal contamination. Although the bacterial pathogens may coexist with or cause proctitis, they usually produce symptoms (diarrhea, fever, bloating, nausea, and abdominal pain) suggesting disease more proximal in the GI tract. These diseases can cause various forms of cancer long term, malnutrition, and weight loss. For immuno-compromised individuals (such as with HIV), these infections can often cause severe weight loss, weakness, and death. Cryptosporidium is the organism most commonly isolated in HIV positive patients presenting with diarrhea. Pathophysiology Many STDs are (more easily) transmitted through the mucous membranes of the penis, vulva, rectum, urinary tract and (less often-depending on type of infection) the mouth, throat, respiratory tract and eyes. The visible membrane covering the head of the penis is a mucous membrane, though it produces no mucus (similar to the lips of the mouth). Mucous membranes differ from skin in that they allow certain pathogens into the body. Pathogens are also able to pass through breaks or abrasions of the skin, even minute ones. The shaft of the penis is particularly susceptible due to the friction caused during penetrative sex. The primary sources of infection in ascending order are venereal fluids, saliva, mucosal or skin (particularly the penis), infections may also be transmitted from feces, urine and sweat. The amount required to cause infection varies with each pathogen but is always less than you can see with the naked eye. This is one reason that the probability of transmitting many infections is far higher from sex than by more casual means of transmission, such as non-sexual contact-touching, hugging, shaking hands-but it is not the only reason. Although mucous membranes exist in the mouth as in the genitals, many STIs seem to be easier to transmit through oral sex than through deep kissing. According to a safe sex chart, many infections that are easily transmitted from the mouth to the genitals or from the genitals to the mouth, are much harder to transmit from one mouth to another. With HIV, genital fluids happen to contain much more of the pathogen than saliva. Some infections labeled as STIs can be transmitted by direct skin contact. Herpes simplex and HPV are both examples. KSHV, on the other hand, may be transmitted by deep-kissing but also when saliva is used as a sexual lubricant. Depending on the STD, a person may still be able to spread the infection if no signs of disease are present. For example, a person is much more likely to spread herpes infection when blisters are present (STD) than when they are absent (STI). However, a person can spread HIV infection (STI) at any time, even if he/she has not developed symptoms of AIDS (STD). All sexual behaviors that involve contact with the bodily fluids of another person should be considered to contain some risk of transmission of sexually transmitted diseases. Most attention has focused on controlling HIV, which causes AIDS, but each STD presents a different situation. As may be noted from the name, sexually transmitted diseases are transmitted from one person to another by certain sexual activities rather than being actually caused by those sexual activities. Bacteria, funia, protozoa or viruses are still the causative agents. It is not possible to catch any sexually transmitted disease from a sexual activity with a person who is not carrying a disease; conversely, a person who has an STD got it from contact (sexual or otherwise) with someone who had it, or his/her bodily fluids. Some STDs such as HIV can be transmitted from mother to child either during pregnancy or breastfeeding. Although the likelihood of transmitting various diseases by various sexual activities varies a great deal, in general, all sexual activities between two (or more) people should be considered as being a two-way route for the transmission of STDs, i.e., giving or receiving are both risky although receiving carries a higher risk. Healthcare professionals suggest safer sex, such as the use of condoms, as the most reliable way of decreasing the risk of contracting sexually transmitted diseases during sexual activity, but safer sex should by no means be considered an absolute safeguard. The transfer of and exposure to bodily fluids, such as blood transfusions and other blood products, sharing injection needles, needle-stick injuries (when medical staff are inadvertently jabbed or pricked with needles during medical procedures), sharing tattoo needles, and childbirth are other avenues of transmission. These different means put certain groups, such as medical workers, and haemophiliacs and drug users, particularly at risk. Recent epidemiological studies have investigated the networks that are defined by sexual relationships between individuals, and discovered that the properties of sexual networks are crucial to the spread of sexually transmitted diseases. In particular, assortative mixing between people with large numbers of sexual partners seems to be an important factor. It is possible to be an asymptomatic carrier of sexually transmitted diseases. In particular, sexually transmitted diseases in women often cause the serious condition of pelvic inflammatory disease. Prevention Main article: Safe sex Prevention is key in addressing incurable STIs, such as HIV herpes. The most effective way to prevent sexual transmission of STIs is to avoid contact of body parts or fluids which can lead to transfer with an infected partner. No contact minimizes risk. Not all sexual activities involve contact: cybersex, phonesex or masturbation from a distance are methods of avoiding contact. Proper use of condoms reduces contact and risk. Although a condom is effective in limiting exposure, some disease transmission may occur even with a condom. Ideally, both partners should get tested for STIs before initiating sexual contact, or before resuming contact if a partner engaged in contact with someone else. Many infections are not detectable immediately after exposure, so enough time must be allowed between possible exposures and testing for the tests to be accurate. Certain STIs, particularly certain persistent viruses like HPV, may be impossible to detect with current medical procedures. Many diseases that establish permanent infections can so occupy the immune system that other diseases become more easily transmitted. The innate immune system led by defensins against HIV can prevent transmission of HIV when viral counts are very low, but if busy with other viruses or overwhelmed, HIV can establish itself. Certain viral STIs also greatly increase the risk of death for HIV infected patients. Vaccines Vaccines are available that protect against some viral STIs, such as Hepatitis B and some types of HPV. Vaccination before initiation of sexual contact is advised to assure maximal protection. Condoms Condoms only provide protection when used properly as a barrier, and only to and from the area that it covers. Uncovered areas are still susceptible to many STDs. In the case of HIV, sexual transmission routes almost always involve the penis, as HIV cannot spread through unbroken skin, thus properly shielding the insertive penis with a properly worn condom from the vagina and anus effectively stops HIV transmission. An infected fluid to broken skin borne direct transmission of HIV would not be considered sexually transmitted, but can still theoretically occur during sexual contact, this can be avoided simply by not engaging in sexual contact when having open bleeding wounds. Other STDs, even viral infections, can be prevented with the use of latex condoms as a barrier. Some microorganisms and viruses are small enough to pass through the pores in natural skin condoms, but are still too large to pass through latex condoms. Proper usage entails: Not putting the condom on too tight at the end, and leaving 1.5 cm (3/4 inch) room at the tip for ejaculation. Putting the condom on snug can and often does lead to failure. Wearing a condom too loose can defeat the barrier. Avoiding inverting, spilling a condom once worn, whether it has ejaculate in it or not, even for a second. Avoiding condoms made of substances other than latex or polyurethane, as they dont protect against HIV. Avoiding the use of oil based lubricants (or anything with oil in it) with latex condoms, as oil can eat holes into them. Using flavored condoms for oral sex only, as the sugar in the flavoring can lead to yeast infections if used to penetrate. Not following the first five guidelines above perpetuates the common misconception that condoms arent tested or designed properly. In order to best protect oneself and the partner from STIs, the old condom and its contents should be assumed to be still infectious. Therefore the old condom must be properly disposed of. A new condom should be used for each act of intercourse, as multiple usage increases the chance of breakage, defeating the primary purpose as a barrier

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