Corporate governance mechanisms and earnings management in transitional countries – evidence from Chinese listed firms

The objective of this thesis is to investigate whether the corporate governance practices adopted by Chinese listed firms are associated with the quality of earnings information. Based on a review of agency and institutional theory, this study develops hypotheses that predict the monitoring effectiveness of the board and the audit committee. Using a combination of univariate and multivariate analyses, the association between corporate governance mechanisms and earnings management are tested from 2004 to 2008. Through analysing the empirical results, a number of findings are summarised as below. First, board independence is weakened by the introduction of government officials as independent directors on the boards. Government officials acting as independent directors, claim that they meet the definition of independent director set by the regulation. However, they have some connection with the State, which is the controlling shareholder in listed SOEs affiliated companies. Consequently, the effect of the independent director’s expertise in constraining earnings management is mitigated as demonstrated by an insignificant association between board expertise and earnings management. An alternative explanation for the inefficiency of board independence may point to the pre-selection of independent directors by the powerful CEO. It is argued that a CEO can manipulate the board composition and choose the "desirable" independent directors to monitor themselves. Second, a number of internal mechanisms, such as board size, board activities, and the separation of the roles of the CEO and chair are found to be significantly associated with discretionary accruals. This result suggests that there are advantages in having a large and active board in the Chinese setting. This can offset the disadvantages associated with large boards, such as increased bureaucracy, and hence, increase the constraining effects of a large and resourceful board. Third, factor analysis identifies two factors: CEO power and board power. CEO power is the factor which consists of CEO duality and turnover, and board power is composed of board size and board activity. The results of CEO power show that if a Chinese listed company has CEO duality and turnover at the same time, it is more likely to have a high level of earnings management. The significant and negative relationship between board power and accruals indicate that large boards with frequent meetings can be associated with low level of earnings management. Overall, the factor analysis suggests that certain governance mechanisms complement each other to become more efficient monitors of opportunistic earnings management. A combination of board characteristics can increase the negative association with earnings management. Fourth, the insignificant results between audit committees and earnings management in Chinese listed firms suggests that the Chinese regulator should strengthen the audit committee functions. This thesis calls for listed firms to disclose more information on audit committee composition and activities, which can facilitate future research on the Chinese audit committee’s monitoring role. Fifth, the interactive results between State ownership and board characteristics show that dominant State ownership has a moderating effect on board monitoring power as the State totally controls 42% of the issued shares. The high percentage of State ownership makes it difficult for the non-controlling institutional shareholders to challenge the State’s dominant status. As a result, the association between non-controlling institutional ownership and earnings management is insignificant in most situations. Lastly, firms audited by the international Big4 have lower abnormal accruals than firms audited by domestic Chinese audit firms. In addition, the inverse U-shape relationship between audit tenure and earnings quality demonstrates the changing effects of audit quality after a certain period of appointment. Furthermore, this thesis finds that listing in Hong Kong Stock Exchanges can be an alternative governance mechanism to discipline Chinese firms to follow strict Hong Kong listing requirements. Management of Hong Kong listed companies are exposed to the scrutiny of international investors and Hong Kong regulators. This in turn reduces their chances of conducting self-interested earnings manipulation. This study is designed to fill the gap in governance literature in China that is related to earnings management. Previous research on corporate governance mechanisms and earnings management in China is not conclusive. The current research builds on previous literature and provides some meaningful implications for practitioners, regulators, academic, and international investors who have investment interests in a transitional country. The findings of this study contribute to corporate governance and earnings management literature in the context of the transitional economy of China. The use of alternative measures for earnings management yields similar results compared with the accruals models and produces additional findings.

Preventing injuries on a state-wide basis : researchers and parliamentary committees are partners in turning injury prevention and safety research into practice and policy

Context: Parliamentary committees established in Westminster parliaments, such as Queensland, provide a cross-party structure that enables them to recommend policy and legislative changes that may otherwise be difficult for one party to recommend. The overall parliamentary committee process tends to be more cooperative and less adversarial than the main chamber of parliament and, as a result, this process permits parliamentary committees to make recommendations more on the available research evidence and less on political or party considerations. Objectives: This paper considers the contributions that parliamentary committees in Queensland have made in the past in the areas of road safety, drug use as well as organ and tissue donation. The paper also discusses the importance of researchers actively engaging with parliamentary committees to ensure the best evidence based policy outcomes. Key messages: In the past, parliamentary committees have successfully facilitated important safety changes with many committee recommendations based on research results. In order to maximise the benefits of the parliamentary committee process it is essential that researchers inform committees about their work and become key stakeholders in the inquiry process. Researchers can keep committees informed by making submissions to their inquiries, responding to requests for information and appearing as witnesses at public hearings. Researchers should emphasise the key findings and implications of their research as well as considering the jurisdictional implications and political consequences. It is important that researchers understand the differences between lobbying and providing informed recommendations when interacting with committees. Discussion and conclusions: Parliamentary committees in Queensland have successfully assisted in the introduction of evidence based policy and legislation. In order to present best practice recommendations, committees rely on the evidence presented to them including the results of researchers. Actively engaging with parliamentary committees will help researchers to turn their results into practice with a corresponding decrease in injuries and fatalities. Developing an understanding of parliamentary committees, and the typical inquiry process used by these committees, will help researchers to present their research results in a manner that will encourage the adoption of their ideas by parliamentary committees, the presentation of these results as recommendations within the report and the subsequent enactment of the committee’s recommendations by the government.

Editoral : Correspondence regarding Anker SD, Koehler F, Abraham WT. Telemedicine and remote management of patients with heart failure. The Lancet 2011; 378: 731–39. Published 20 August 2011.

We read the excellent review of telemonitoring in chronic heart failure (CHF)1 with interest and commend the authors on the proposed classification of telemedical remote management systems according to the type of data transfer, decision ability and level of integration. However, several points require clarification in relation to our Cochrane review of telemonitoring and structured telephone support2. We included a study by Kielblock3. We corresponded directly with this study team specifically to find out whether or not this was a randomised study and were informed that it was a randomised trial, albeit by date of birth. We note in our review2 that this randomisation method carries a high risk of bias. Post-hoc metaanalyses without these data demonstrate no substantial change to the effect estimates for all cause mortality (original risk ratio (RR) 0·66 [95% CI 0·54, 0·81], p<0·0001; revised RR 0·72 [95% CI 0·57, 0·92], p=0·008), all-cause hospitalisation (original RR 0·91 [95% CI 0·84, 0·99] p=0·02; revised RR 0.92 [95% CI 0·84, 1·02], p=0·10 ) or CHF-related hospitalisation (original RR 0·79 [95% CI 0·67, 0·94] p=0·008; revised RR 0·75 [95% CI 0·60, 0·94] p=0·01). Secondly, we would classify the Tele-HF study4, 5 as structured telephone support, rather than telemonitoring. Again, inclusion of these data alters the point-estimate but not the overall result of the meta-analyses4. Finally, our review2 does not include invasive telemonitoring as the search strategy was not designed to capture these studies. Therefore direct comparison of our review findings with recent studies of these interventions is not recommended.

Transferring knowledge through peer-reviewed assessment : the creation of a community of practice and the threats to its survival

While it is generally accepted in the learning and teaching literature that assessment is the single biggest influence on how students approach their learning, assessment methods within higher education are generally conservative and inflexible. Constrained by policy and accreditation requirements and the need for the explicit articulation of assessment standards for public accountability purposes, assessment tasks can fail to engage students or reflect the tasks students will face in the world of practice. Innovative assessment design can simultaneously deliver program objectives and active learning through a knowledge transfer process which increases student participation. This social constructivist view highlights that acquiring an understanding of assessment processes, criteria and standards needs active student participation. Within this context, a peer-assessed, weekly, assessment task was introduced in the first “serious” accounting subject offered as part of an undergraduate degree. The positive outcomes of this assessment innovation was that student failure rates declined 15%, tutorial participation increased fourfold, tutorial engagement increased six-fold and there was a 100% approval rating for the retention of the assessment task. In contributing to the core conference theme of “seismic” shifts within higher education, in stark contrast to the positive student response, staff-related issues of assessment conservatism and the necessity of meeting increasing research commitments, threatened the assessment task’s survival. These opposing forces to change have the potential to weaken the ability of higher education assessment arrangements to adequately serve either a new generation of students or the sector's community stakeholders.

Transferring knowledge through peer-reviewed assessment : the creation of a community of practice and the threats to its survival

While it is generally accepted in the learning and teaching literature that assessment is the single biggest influence on how students approach their learning, assessment methods within higher education are generally conservative and inflexible. Constrained by policy and accreditation requirements and the need for the explicit articulation of assessment standards for public accountability purposes, assessment tasks can fail to engage students or reflect the tasks students will face in the world of practice. Innovative assessment design can simultaneously deliver program objectives and active learning through a knowledge transfer process which increases student participation. This social constructivist view highlights that acquiring an understanding of assessment processes, criteria and standards needs active student participation. Within this context, a peer-assessed, weekly, assessment task was introduced in the first “serious” accounting subject offered as part of an undergraduate degree. The positive outcomes of this assessment innovation was that student failure rates declined 15%, tutorial participation increased fourfold, tutorial engagement increased six-fold and there was a 100% approval rating for the retention of the assessment task. In contributing to the core conference theme of “seismic” shifts within higher education, in stark contrast to the positive student response, staff-related issues of assessment conservatism and the necessity of meeting increasing research commitments, threatened the assessment task’s survival. These opposing forces to change have the potential to weaken the ability of higher education assessment arrangements to adequately serve either a new generation of students or the sector's community stakeholders.

Practice and Procedure. Self-executing order - construction - whether further judicial at required for self-executing order to take effect

In Mango Boulevard Pty Ltd v Spencer [2010] QCA 207, a self-executing order had been made in consequence of continuing default by parties to the proceedings in meeting their disclosure obligations. The case involved several questions about the construction and implications of the self-executing order. This note focuses on the aspects of the case relating to that order.

Practice and procedure : an application under r367 of the Uniform Civil Procedure Rules may be of use in obtaining copies of otherwise unavailable documents held by government agencies.

In Bowenbrae Pty Ltd v Flying Fighters Maintenance and Restoration [2010] QDC 347 Reid DCJ made orders requiring the plaintiffs to make application under the Freedom of Information Act 1982 (Cth) (“the FOI Act”) for documents sought by the defendant.

Shikumidukuri vs. one best (no) way! Project and Programme Management for Enterprise Innovation (P2M) : towards a new paradigm?

The purpose of this paper is to investigate the Japanese answer to the 90’s depression by (i). presenting a case study of the framework developed to address the new business challenges and value creation in complex, ambiguous and uncertain environment, i.e., Development of Project and Programme Management for Enterprise Innovation (P2M) and Project Management Association Japan (PMAJ) in Japan; and (ii). Exposing what in our view are the underlying theoretical bases supporting this framework and from this drawing some theoretical lessons learnt which could be helpful to the development of sound PM standards and PM competence model. This theoretical approach is assumed to be useful to transpose the Japanese experience to other analogical contexts and situations.

Functional and advanced functional and causal relationship diagrams for remote condition monitoring

Analysing the condition of an asset is a big challenge as there can be many aspects which can contribute to the overall functional reliability of the asset that have to be considered. In this paper we propose a two-step functional and causal relationship diagram (FCRD) to address this problem. In the first step, the FCRD is designed to facilitate the analysis of the condition of an asset by evaluating the interdependence (functional and causal) relationships between different components of the asset with the help of a relationship diagram. This is followed by the advanced FCRD (AFCRD) which refines the information from the FCRD into a comprehensive and manageable format. This new two-step methodology for asset condition monitoring is tested and validated for the case of a water treatment plant. © IMechE 2012.

Corporate profit and impression management in developing markets

In this study, we examine how organisations in Fiji communicate or legitimise their profit. We base the need for understanding this phenomenon on the following premise. Organisations are part of a wider society, and in competition for scarce resources. Organisations obtain the rights to consume resources upon conception, but must continually legitimise their rights of existence and the need to access the resources. Legitimacy is the ability to continue to justify one’s authority to exist in a society. Organisations rights to resources are contractual, and have a moral obligation to act in a responsible manner and justify their outcomes, actions, and activities to external stakeholders. Such justifications would be an attempt at legitimizing their existence by some form of impression management. Impression management refers to the process by which individuals attempt to influence the impression of others (Melo et al. 2009). In corporate reporting, impression management occurs when management selects, display, and presents that information in a manner that distorts readers’ perceptions of corporate achievements (Neu 1991; Patten 2002), and is managed best through disclosures (O’Donovan 2002). In developing economies, there is significant Government protection that creates near-monopoly sectors and industries. The rendered protection permits organisations to provide essential services to the community at reasonable costs. Organisations in these sectors and industries have an ominous need to legitimise their position and actions. The bond between the organisations and the society is much stronger, making organisations devote more effort in communicating their activities. Protection permits organisations to make reasonable profits to sustain their operations. Society may not accept abnormal profits from operational efficiencies. Profit is fundamental to the society’s perception of an organisation, amplifying the need for the firm to justify a level of profit. Abnormal profit for organisations construes bad news, and organisations would make relevant disclosures to manage stakeholder impressions on profit (Patten 2002). Organisations can manage impressions by disclosing information in a particular way. That is, organisations would want to put the impression that the abnormal profit is justified and the society will obtain its benefits in future. Such form of impression management requires unambiguous disclosure of information. The readability of corporate disclosures is an important indicator of organisational abnormal profit-related legitimacy efforts in developing economies.

Unpacking the connections between network and stakeholder management and their application to road infrastructure networks in Queensland

Since the late twentieth century, there has been a shift away from delivery of infrastructure, including road networks, exclusively by the state. Subsequently, a range of alternative delivery models including governance networks have emerged. However, little is known about how connections between these networks and their stakeholders are created, managed or sustained. Using an analytical framework based on a synthesis of theories of network and stakeholder management, three cases in road infrastructure in Queensland, Australia are examined. The paper finds that although network management can be used to facilitate stakeholder engagement, such activities in the three cases are mainly focused within the core network of those most directly involved with delivery of the infrastructure often to the exclusion of other stakeholder groups.

Dietetic confidence working with clients with depression/anxiety is associated with client-focused practice and advocacy skills

Confidence in a professional role is a key element in the successful transition to competent practice. New graduate dietitians report that whilst they are confident about their general dietetic ability, they are not as confident when working with clients experiencing depression or anxiety. This study aimed to develop and validate a scale which measured confidence about working with clients with depression/anxiety. The 21-item Dietetic Collaborative Practice Scale was developed using research about dietetic practice in mental health (Dowding et al., 2011), coping self-efficacy literature (Chesney et al., 2006) and collaboration with industry experts. A convenience sample of 189 Australian dietitians completed the questionnaire. Exploratory factor analysis suggests that dietetic confidence is best represented by a two-dimensional solution consisting of (a) Client-focused practice (CFP, 50.8% variance); and (b) Advocacy for self and client care (ASC, 9.7% variance). The alpha coefficient of both dimensions (CFP α=.95, ASC α=.84) demonstrates the internal consistency of components. Combined, these two components account for 60.5% of variance. The scale components were not related to years of practice or working with mental health clients but were significantly related to overall dietetic confidence (ODC). Correlation coefficients between ODC and CFP were .501 (p<.01), ODC and ASC were correlated at .465 (p<.01) and CFP and number of years as a dietitian were weakly correlated at 0.24 (p<.05). Results have implications for dietetic training and professional development. Client focus and advocacy for self and client appear to be important factors in overall confidence as a dietitian.

Practice and Procedure: Worker's Compensation and Rehabilitation Act 2003 (Qld) s275

In Australian Meat Holdings Pty Ltd v Sayers [2007] QSC 390 Daubney J considered the obligation imposed on a claimant under s 275 of the Workers’ Compensation and Rehabilitation Act 2003 (Qld) to provide the insurer with an authority to obtain information and documents. The decision leads to practical results.