Evaluating an empirical evaluation of accounting income numbers - Free Essay Example

Sample details Pages: 10 Words: 2862 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Accounting theorists have tested the usefulness of accounting practice which had been agreed with certain analytic model which consist only a few assertions. In each case, they are using a completely analytical approach which has generally been restricted to the extent of comparing the existing practices with the more preferable .One of the major shortcomings of  this method which is completely analytical approach is that it ignores  the extent to which it can predict or explain the observed behavior.   Completely analytical approach has led theorists to claim that  income  numbers cannot be defined substantively,  they lack meaning and are therefore of doubtful utility.   The argument about income numbers argued that accountants should also consider new situations and problems such as price level changes and taxation charges instead of just concentrating on a few problem areas. However, as accounting lacks an all embracing theoretical framework dissimilarities in practice occurred. So, net income becomes incomparable which have no other substantive meaning at all. Hence empirical testing becomes important and compulsory to emphasize that a lack of substantive meaning does not generally imply a lack of utility. Don’t waste time! Our writers will create an original "Evaluating an empirical evaluation of accounting income numbers" essay for you Create order An empirical test tests the agreement as to what real world outcome represents an appropriate test of usefulness. Since accounting income numbers are of special interest to the investors, security prices have been used as the predictive criterion of the investment decision. If an observed revision of stock prices is related with the release of income report then it can be concluded that the information reflected in income numbers is useful. We can also say that the purpose empirical test is to test the relationship between stock price and income numbers. The content and timing if the existing annual net income will be evaluated as the lack of either one of them will vitiate the usefulness of income numbers. Empirical Test The reason to select the behavior of security prices to be the operational test of usefulness is based on the recent developments in Capital Theory. The Capital theory supports the proposition that if the information from income numbers is useful in forming stock prices, capital markets are efficient and unbiased. It means that the market will adjust the stock prices rapidly to the information from income numbers and will not give any chance for abnormal gain. The authors relate the income numbers and security prices based on this theory and they are focusing on the information of a particular firm, not all firms. They construct 2 alternative models which are income regression model and naÃÆ'ƒÂ ¯ve model to show what capital market expects the income to be. Then, they also look into the markets reaction when the expectations been identifying as wrong by using stock return model. Conditional Expectation of Income Changes There is a study shows that about half of the variability in a firms earning per share (EPS) is associated with economy wide effects. So, it indicates that at least part of the change in a firms income can be predicted in the following year. If a firms income is related to other firms income in particular way and there is knowledge about those other firms present income, it can result in the conditional expectation for the firms present income. From this, it shows the difference between the actual change in income and its conditional expectation will be the new information from a firms present income numbers.* However, the difference may come from the policy effects. Seem these 2 effects are felt at the same time, thus their relationship must be estimated jointly. The authors use Ordinary Least Squares (OLS) in estimating the actual change in income. The equation is as below: ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Ij,t-r = 1jt + 2jtÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Mj,t-r + j,t-r ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦(1) a1jt, a2jt : Coefficients from the linear regression ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Ij,t-r : Change in income of firm j ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Mj,t-r : Change in income of all firms in the market (other than firm j) j,t-r : Forecast error / unexpected income change r =1,2,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦,t-1 : Data up to end of previous year In income regression model, the expected change in income for firm j can be predicted by the average income change for the market. ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  j,t = 1jt + 2jtÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Mj,t ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦(2) From equation 1 2, it is obviously showing that the difference is j,t. It is called as forecast error or unexpected income change where is actually the difference between actual income (ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Ij,t ) and expected income (ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  j,t). This forecast error is what we assume to be the new information from a firms present income numbers.* The Markets Reaction Similar as the above, there is also a study states that up to 40% of the variability in stocks monthly rate of return is associated with the market wide effect. The effect of market wide information on monthly rate of return can be estimated by its predicted value of the monthly price relatives of firm js stock on a market index of returns. [PRjm 1] = ÃÆ'†¹Ãƒ ¢Ã¢â€š ¬Ã‚  b1jm + ÃÆ'†¹Ãƒ ¢Ã¢â€š ¬Ã‚  b2jm[Lm 1] + ÃÆ'†¹Ãƒ ¢Ã¢â€š ¬Ã‚  vjm ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦(3) b1j, b2j : Parameters from the linear regression PRjm : Monthly price relative for firm j and month j L : Fishers Combination Investment Performance Index [Lm 1] : Market monthly rate of return Vjm : Stock return residual In this stock return model, the residual, vjm is the difference between realized return and expected return. As the market has been adjust rapid and efficiently to new information, the residual must represents the impact of information, on return of firm js stock. Economtric Issues In income regression model, there is an assumption that the Mj (market index of income) and uj (forecast error) are uncorrelated. This assumption is supported by its alternative model which is naÃÆ'ƒÂ ¯ve model. However, this assumption is violated by the stock return model. Correlation of Mj and uj can be in 2 forms which are inclusion of firm j in Mj or the presence of industry effects. In income regression model, it is obviously shown in the equation 1 that the firm j is not including in Mj. It is estimated that the industry effect just account for at most 10% of the variability in a firms income. Thus, this model belief is that the bias in the estimates is not significant. For naÃÆ'ƒÂ ¯ve model, it is predicted that the present year income will be the same as for last and the uj is just the change in income from prior year. In stock return model, there are 2 violations that Mj. is correlated with residual (vj). The first violation is that return on firm j is included in the Mj. although it is just a small portion. The second violation is that vj is nonzero for certain months around the report dates. It is belief that the bias will have little effect on the result although it is low. Summary The rate of return over a period of a particular firm would reflect only the presence of market-wide information which pertains to all firms in the case where unlikely absence of useful/significant information about the firm over that period. We can identify the effect of individual firms information pertaining by abstracting from market effects. Segregate the unexpected and expected elements of income change. If the income forecast error is negative (actually change in income is less than its conditional expectation) Bad news-predict that if there is some association between accounting income number and stock prices Release of the income number would result in the return on that firms securities being less than would otherwise have been expected. Such a result () would be evidenced by negative behavior in the stock return residuals () around the annual report announcement date. And vice versa for the case of positive forecast error. Data There are 3 classes of data will be used in the empirical test in both regression model and naÃÆ'ƒÂ ¯ve model. They are the contents of income reports (income numbers), the annual report announcement date and the stock price. Income Numbers The income numbers for 1946 through 1966 were obtained from the Standard and Poors Compustat tapes which is a database of financial, statistical and market information on active and inactive companies throughout the world. First, we need to obtain the distributions if the square coefficients of correlation between the changes in the incomes of the individual frims as well as the changes in the markets income index. When estimating the association between the income for a firm and the market, the income of the particular firm should be excluded from the market. In this article, we cannot refer to the existence of autocorrelation in the disturbances when the level of net income and EPS were regressed at a proper index as what was examined in the forerunner article. It is because the method to analyze the stock markets reaction to income numbers in this article presuppose that the income forecast error cannit be predicted at minimum 12 months prior to the announcement date. When the err or is auto-correlated as stated above ( forerunner article) , this presupposition is inappropriate. Annual report Announcement Dates There are 3 kinds of annual report announcements in the Wall Street Journal which are forecast of the income report, preliminary reports and the complete annual report. The Forecast of the income report usually is done shortly after the year end which believed to be inprecise. Therefore, the preliminary report is often become a condensed preview of the annual report. Besides, as the numbers for net income is usually same for both preliminary reports and the complete annual report, the date of the annual report become generally available was assumes to be the date when the preliminary report is published on The Wall Street Journal. Stock price Here, we refer stock price as movement of security prices around the announcement date. Stock price were obtained from the tapes constructed by the Centre for Research in Security Prices. In this article, monthly closing prices on the New York Stock Exchange, adjusted for dividends and capital changes for the period January 1946 to June 1966 were used. Inclusion Criteria However, Firm included in the study must meet the following criteria: Firms earning data must be available on the compustat tapes for each of the years 1946 to 1966 Firms Fiscal year ending at December 31 on The Wall Street Journal. Firms price data on the CRSP tapes must be at least 100 months. Wall Street Journal announcement dates available. The 4 selection criteria may reduce the generality of result as firms selected do not young firms.failed firm, those who do not report on 31 Dec, those which are not presented on Compustat , CRSP tapes and the Wall Street Journal. Results Abnormal Performance Index (API) is a way to study how accounting income numbers are being related to stock returns. It measures the effects of the information at the time it is being disclosed and also the anticipation in the period up to the announcement of annual reports. Define month 0 as the month of the announcement of annual report, API tracks the return over and above the equilibrium rate (excess return) that would be generated from investing one dollar in a company at the end of the month of 12 months prior to the month of annual report announcement and hold to the end of some arbitrary holding period. These excess profits are the result of information arriving which in turn affect returns. From Figure 1, according to 3 variables, the top half is having positive forecast error. This means actual income is more than expected income. For the bottom half, it shows negative forecast error which means actual income is less than expected income. Then, the line divide the two halves consists of all firms and years in total samples. Thus, it is approximately to 1. Positive forecast error can consider as good news for company. Meanwhile, negative forecast error can consider as bad news for company. This is because if the forecast error is positive, it means there is much information is being anticipated and the actual signal at 0 did not contain significant information. The converse situation happens to negative forecast error. They are much information not being anticipated and the actual signal at 0 did contain significant information. Thus, API did affects on the stock returns. Specific Result Signs of the income forecast errors There is some difference between the two regression model variables. From the research conducted, we know that the signs of the income forecast errors for variable (2) will directly influence the signs of the income forecast errors for the variable (1). If variable (2) is positive, most probably variable (1) is positive as well. But if there is a difference among the result for both variables, then we will take into consideration the signs of the income forecast errors for variable (2). While there is few choices between variable (2) and variable (1), variable (3) (the naÃÆ'ƒÂ ¯ve model) is best to show the portfolio of company with negative forecast errors. The naÃÆ'ƒÂ ¯ve model will show the same forecast error as regression model if the change in market income is zero and there is no drift in the income. Bias in the drift downward in the API computed There is a computational bias in the drift downward shown in the sample. But the bias will not affect the interpreting the values of API. This explains why the changes in the bottom panel are tend to be greater to the changes in the top panel; why top panel tend to turn down after month 0 and why the bottom panel tend to persist beyond month of the announcement of report. Definition of income Additional definition of income: Operating income Net income before the nonrecurring items Although the meaning might be slightly different, the result will be quite close even different amount is using to calculate the forecast errors Relationship between sign of the income forecast error and stock return residual The relationship will ne persisted as long as 2 months before the month of announcement of annual report. There are three explanations to explain the relationship: The markets index of income was no known until few firms had announced their income numbers There will be random error in the announcement date The preliminary report are not perceived by the market as final The value of annual net income relative to other sources of information The result shows that accounting income numbers is useful as it related to stock prices. Although annual accounting report is just only one of the many sources of information that available for investors to make their investment decision, this section is also vital in providing some insight into the timeliness of the reports. The first conclusion is about 75 percent of the value of annual net income appears to be offsetting. This means that the 25 percent left is persists, about half of it can be associated with the information consists in the reported income reports. The second conclusion is accounting income numbers capture about half of the net effect of all information available throughout the 12 months preceding their release. Many other bits of information are usually released in the same month as reported income 85 to 90 percent of the net effect of information about annual income is already reflected in security prices by the month of its announcement The period of the annual report is already one-and-one-half months into history. Results are systematically biased against findings in favor of accounting reports due to: The assumption that stock prices are from transactions which have taken place simultaneously at the end of the month The assumption that there are no errors in data The discrete nature of stock prices quotations The presumed validity of the errors in forecast model The regression estimates of the income forecast errors being random variables, which implies that some misclassifications of the true earnings forecast errors are inevitable. Conclusion This paper had made seminal contributions in the accounting research. In fact, this paper was the first regulated effort to study the information content of the accounting income numbers. Thus, it had led to paradigm shift in the models that were earlier analyzed by the accounting theorists The article can be concluded that the information reflected in income numbers is useful because an observed revision of stock prices is related with the release of income report. Besides, this study brings some other issues which can be furthered tested. For example, media by which the market able to anticipate their income need to be identified and the problem faced by the accountants to assess the cost of preparing annual income reports for the more timely interim report. Besides, the relationship between the magnitude of the unexpected income change and the associated stock price adjustment could also be further tested so that it can provide a different way to measure the value of information on income changes. Despite from the bias which mentioned in the data part, one of the most serious limitations remains the assumption of the unidirectional relationship between income and stock prices. It would be credulous to think that only income causes changes in stock prices and not vice versa. Evidence shows that stock prices and income are endogenous in nature thus if the system of simultaneous equations is used to replace simple regression technique, it is believed to be more relevant.

Injustice In 1984 By Dr. Martin Luther King Jr. - 1013 Words

Picture a dim room where a woman lies in the darkest corner struggling for freedom from an injustice, the injustice that is poisoning the world around her. Throughout history, and even in today’s society, any type of injustice has hindered the ability for justice to thrive. If one is to think about it if there is corruption in any one place by any one person than there is an influence to promote the continuation of this corruption. As long as this continues then these places cannot achieve fairness. Dr. Martin Luther King Jr. addresses this sentiment when he says, â€Å"Injustice anywhere is a threat to justice everywhere.† Injustice, as stated by Martin Luther King, is constantly threatening, contaminating, and oppressing the accounts of†¦show more content†¦The author specifically talks about how a Mexican immigrant named George does not know how to speak, read, or write English. George is required to forfeit a substantial amount of his pay, every week, to th e person who brought him to the states. Due to the fact that he does not earn much money, George is forced to live under poor living condition (Ehrenreich). Because George is an immigrant, he is forced to work in this job and live under these conditions. George is starting from nothing, which from the start puts him at the bottom of the social spectrum. Therefore he needs to continue to attain more wealth to go to school, receive an education, and have better opportunities for jobs that pay better. Because George does not have the same opportunities as other Americans from the beginning, it creates obstacles and social injustice. As long as people are not able to have the same opportunities as the wealthy which establishes a social spectrum, and people living in fear of their government than justice remains threatened. 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Australia2 Essay Example For Students

Australia2 Essay Australia has changed hands a lot throughout its history. From being inhabited by the aborigines, which had been there for around forty thousand years, until the British claimed it. However the British were not the first to come across this continent, they were just the first countries to see it as useful. The Dutch were seeking new land and trade in the East Indies, and found that sailing along the coasts of Africa and India too much longer than if the went due east and the cut up. However, the Dutch Vessel, Duyfken, first sighted the coast of modern day Australia in 1606 when it did not turn north in time. In 1642-43 Able Tasman was looking for new land south of Batavia, and shifted course to avoid bad weather. In doing so, he ran into the stormy west coast of Tasmania which he named VanDiemens Land. He also sailed eastward after that and discovered New Zealand. All of these discoveries revealed only desolate deserts and hostile natives. It wasnt until 1770 when James Cook discovered the long avoided east coast that it was seen as a possible resource. The British soon lost their American colony, where they had sent some of their prisoners, and now began to consider Botany Bay, Cooks first landfall, as the next penal colony (Brander, 18). The First Fleet left sail from Portsmouth, England in May 1787 heading for Australia under the command of Authur Phillip (httpozramp). Phillip and his crew landed on January 26, 1788, which is now celebrated as Australia Day (Australia). There were prisoners that were also aboard the ship that landed in Australia. Huddled in the bowels of the ships were 772 terrified convicts- 568 men, 191 women, and 13 children (Brander, 15). Many of the crimes that they were charged with crimes that would be thought of as trivial by todays standards (Australia). They landed in Botany Bay, and approximately forty people had perished during the journey (httpfirst). Many of them were sentenced to stay there for 7 years, but some were sentenced to remain there for life (httpfirst). After a while Phillip realized that this area wasnt as well suited as he thought it was, and he had spotted another inlet a little farther down the coast. He left early the next day with some crewmembers to scout out that ba y, to see if it was any better. The reason for the urgency were two French ships that had been sighted, the La Boussale and LAstrolabe, which were commanded by Jean Francois De La Perouse. Phillip was anxious to beat the French, to have traveled all this was and to be beaten the last by the French in taking possesion of the land would have been disastrous (httpwarra). The port that he found was said to be the finest port in the world and was impressed. He decided that they would stay here instead of the original landing area. Later Phillip realized that no matter where they were the land wasnt easily cultivated. By June 1790 when the second fleet arrived at Port Jackson, the people of the first fleet were facing starvation. They were beginning to feel abandoned by Britain and the sight of the second fleet brought relief (httpwarra). However, after the doors of the ship opened, the people on the shore were amazed at the condition of the people on the ship. Some of the people, now exp osed to fresh air, fainted, died on deck, or died on the ship on their way to shore (httpwarra). The first fleet had navy supervision, but private traders did the second fleet. They were offered 17 10S 6D for each convict by the government, whether they reached Australia alive or not (httpwarra). It was so bad that Phillip wrote an official report on the condition of the prisoners when they reached the colony. After his letter the ship owners were paid in full when the prisoners had reached Australia safely. Once this was implemented surgeons were on board the ships and the prisoners were encouraged to use their free time to exercise and get some fresh air (httpwarra). Once the convicts reached Australia their fate was almost in their own hands (httpwarra). If they had a skill the might be paid for their work, but if not then they merely worked for their lodgings and some food. This was how most of the prisoners lived out their lives as long as they kept themselves clean. If they co mmitted a crime while there, they were sent to a secondary punishment site, either Port Arthur or Norfolk Island. These places were known as hell to almost everyone due to the severe punishment they received there (httpwarra). .ue6fa25e6d25e58f4967f942708487678 , .ue6fa25e6d25e58f4967f942708487678 .postImageUrl , .ue6fa25e6d25e58f4967f942708487678 .centered-text-area { min-height: 80px; position: relative; } .ue6fa25e6d25e58f4967f942708487678 , .ue6fa25e6d25e58f4967f942708487678:hover , .ue6fa25e6d25e58f4967f942708487678:visited , .ue6fa25e6d25e58f4967f942708487678:active { border:0!important; } .ue6fa25e6d25e58f4967f942708487678 .clearfix:after { content: ""; display: table; clear: both; } .ue6fa25e6d25e58f4967f942708487678 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .ue6fa25e6d25e58f4967f942708487678:active , .ue6fa25e6d25e58f4967f942708487678:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .ue6fa25e6d25e58f4967f942708487678 .centered-text-area { width: 100%; position: relative ; } .ue6fa25e6d25e58f4967f942708487678 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .ue6fa25e6d25e58f4967f942708487678 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .ue6fa25e6d25e58f4967f942708487678 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .ue6fa25e6d25e58f4967f942708487678:hover .ctaButton { background-color: #34495E!important; } .ue6fa25e6d25e58f4967f942708487678 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .ue6fa25e6d25e58f4967f942708487678 .ue6fa25e6d25e58f4967f942708487678-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .ue6fa25e6d25e58f4967f942708487678:after { content: ""; display: block; clear: both; } READ: Churchill’s Eulogy for Neville Chamberlain EssayIn 1793 some of the first free settlers came there and many convicts were sent to work for them. Some did chores around the house, while others were left to do hard labor that included almost everything. These prisoners were called Assigned Convicts (httpwarra). When the prisoners finished their term they came to be known as expires and could do anything except return to England. The only ones that could do that were the free settlers or those convicts that had received pardons. By 1810 the population of Australia had risen to almost twelve thousand and land grants were attracting more and more settlers (httpopening). The new colony became more and more crowded until on May 11TH 1813 George Blaxland, William Lawson and William Wentworth set off from Penrith with convict labor, horses and dogs (httpopening). A few weeks later they came back with the news that they had found land that was as good as any they had ever seen. George Evans confirmed this later, due to the skeptical report. The exploration continued and in 1829 Britain laid claim to the entire continent (Dolce, 11). Australia has been through a lot from the aborigines until the present day. The major change from on to the other was when Britain took it over. At first it was used merely as a penal colony, but was then used simply as a colony, until it gained its independence. Bibliography:Australia. World Search, 2000. Brander, Bruce, et al. Australia. Washington, DC: The National Geographic Society, 1968. Dolce, Laura. Major World Nations: Australia. Philadelphia, PA: Chelsea House Publishers, 1999. http://www.geocities.com/Athens/Rhodes/3567/first.htm. AustraliaAmerica Online. Online. Internet. 18 Nov. 2000. http://www.geocities.com/Athens/Rhodes/3567/opening.htm AustraliaAmerica Online. Online. Internet. 18 Nov. 2000. http://www.geocities.com/Athens/Rhodes/3567/warra.htm AustraliaAmerica Online. Online. Internet. 18 Nov. 2000. http://www.ozramp.net.au/senani/peoplehi.htm AustraliaAmerica Online. Online. Internet. 18 Nov. 2000.

Literacy, Power, and Privilege Essay Example

Literacy, Power, and Privilege Paper Literacy, Power, and Privilege Name: Course: Instructor: We will write a custom essay sample on Literacy, Power, and Privilege specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Literacy, Power, and Privilege specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Literacy, Power, and Privilege specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Date: Literacy and the Distribution of Power and Privilege Literacy is defined as the ability to make and communicate sense from and by the use of various social context symbols. A literate individual has the ability to derive and convey meaning within different levels of developmental ability (World Conference on Education for All, 1990). Moreover, a literate individual is able to apply knowledge acquired in order to achieve the desired purpose or set objectives that need the application of language skills whether spoken or written. It is very easy for any literate individual to mediate between societal needs by significantly and easily changing meaning from one language to a different language using basic knowledge bases. Literacy according to studies is dynamic; it evolves and tends to reflect continual changes within the society inclusive of power and privileges. Privilege refers to granting special advantage, right or benefit to a particular person or a group of people. Power is the ability to act or accomplish a goal or set objectives . Literacy is linked to power and privilege distribution becauaes it is through literacy that a person is able to acquire power and privilege in a society. In most cases, literate individuals are placed in great positions for making sound decisions, improving the quality of living standards, working in dignity, establishing full personal potentials and contributing in societal progression (Samant, 1996). Therefore, the society tends to distribute its powers and privileges to people with such qualities because they are able to lead and guide the society to further growth and development. Literacy helps a person to acquire a full understanding of life and be in a position to solve daily life problems in a society (Pratto, Penelope, 2001). Therefore, it is hard to gain power and privilege without being literate. For instance, the President Barrack Obama was able to gain power and the accorded privileges because of his ability to write, read and apply intrinsic knowledge and skills to the world and the society as required. Additionally, he has the ability to solve issues like war problems facing his people and improve the living standards of communities present in America to the best of his level by eliminating poverty. In India, literacy is associated with power and privilege by virtue of birth into a membership instituted within a biological group setting. This therefore indicates that the relation between literacy, power and privilege together with the outcomes of not having either continue to be a source of concern to those lacking the same. Effects of Race, Class and Gender on Power According to research, race, class and gender tend to shape power very largely. Race, class and gender are interpreted as interlocking categories of experiences that affect all areas of power hence they are responsible for structuring the experiences of those in power in the society. They have an overlapping and cumulative effect on their impacts regarding various life experiences noted by people in power. Race, class and gender may accord negative effects on individuals targeting power due to discrimination instances on the person’s race, gender or societal position /class. A good example where such perceptions may be noted in recruitment or hiring instances (Dugan, 2004). For instance, it was hard for African Americans to get employment opportunities in higher sectors because of skin color in terms of race. Moreover, men are favored more than women are in terms of employment especially in technical occupations whereas people with high social or financial status tend to have higher privileges than poor people have. Therefore, a person in power is supposed to ensure that such issues are eliminated in order to improve the general livelihood within the society, ensure equality among all genders and promote unity between different cultures despite differences noted in race or religious backgrounds. Minorities, Poor People, Women and Equal Distribution of Power and Privileges Inequality is an outcome of two factors namely political imbalance and prejudice directed on a person. The aforementioned groups of people have not received an equal distribution of power and privilege because of the escalating discrimination and prejudice rates present in most communities. This has thus led to structural differences in the access, treatment, and gross social, political, and economical inequities (Dallmayer, 2002). For instance, the minorities are discriminated on basis of issues such as race thus being denied the chance to have power over others. Women are denied the opportunity to hold power in various institutions because they are perceived as weak individuals whose only need is to take care of children and their husbands. The poor are discriminated against because they are not able to acquire superior education in for the elimination of illiteracy. References Dallmayer, R. (2002). Globalization and Inequality: A Plea for Global Justice. International Studies Review, 4(2), 137-156. Dugan, M. (2004). Power inequalities. Colorado: Conflict Research Consortium. Retrieved from http://www.beyondintractability.org/essay/development_conflict_theory/ Pratto, F., Penelope, E. (2001). Gender, Ethnicity, and Power. Journal of Social Issues 57(4), 763-780. Samant, U. (1996). Literacy and social change: from women’s perspective. Proceedings of the 1996 world conference on literacy. Retrieved from http://literacy.org/sites/literacy.org/files/publications/samant_womens_lit_in_india_96.pdf World Conference on Education for All (WCEFA). (1990). World Declaration on Education for All and Framework for Action to Meet Basic Learning Needs. New York, NY: UNICEF/UNESCO.