Reversal of impairment losses, firm performance and reporting incentives: Evidence from Malaysia

Malaysian Financial Reporting Standard (FRS) No. 136, Impairment of Assets, was issued in 2005. The standard requires public listed companies to report their non-current assets at no more than their recoverable amount. When the value of impaired assets is recovered, or partly recovered, FRS 136 requires the impairment charges to be reversed to its new recoverable amount. This study tests whether the reversal of impairment losses by Malaysian firms is more closely associated with economic reasons or reporting incentives. The sample of this study consists of 182 public companies listed on Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange) that reported reversals of their impairment charges during the period 2006-2009. These firms are matched with firms which do not reverse impairment on the basis of industrial classification and size. In the year of reversal, this study finds that the reversal firms are more profitable (before reversals) than their matched firms. On average, the Malaysian stock market values the reversals of impairment losses positively. These results suggest that the reversals generally reflect increases in the value of the previously impaired assets. After partitioning firms that are likely to manage earnings and those that are not, this study finds that there are some Malaysian firms which reverse the impairment charges to manage earnings. Their reversals are not value-relevant, and are negatively associated with future firm performance. On the other hand, the reversals of firms which are deemed not to be earnings managers are positively associated with both future firm performance and current stock price performance, and this is the dominant motivation for the reversal of impairment charges in Malaysia. In further analysis, this study provides evidence that the opportunistic reversals are also associated with other earnings management manifestations, namely abnormal working capital accruals and the motivation to avoid earnings declines. In general, the findings suggest that the fair value measurement in impairment standard provides useful information to the users of financial statements.

The quality of financial information in the extractive industries: a value relevance analysis

The extractive industry is characterized by high levels of risk and uncertainty. These attributes create challenges when applying traditional accounting concepts (such as the revenue recognition and matching concepts) to the preparation of financial statements in the industry. The International Accounting Standards Board (2010) states that the objective of general purpose financial statements is to provide useful financial information to assist the capital allocation decisions of existing and potential providers of capital. The usefulness of information is defined as being relevant and faithfully represented so as to best aid in the investment decisions of capital providers. Value relevance research utilizes adaptations of the Ohlson (1995) to assess the attribute of value relevance which is one part of the attributes resulting in useful information. This study firstly examines the value relevance of the financial information disclosed in the financial reports of extractive firms. The findings reveal that the value relevance of information disclosed in the financial reports depends on the circumstances of the firm including sector, size and profitability. Traditional accounting concepts such as the matching concept can be ineffective when applied to small firms who are primarily engaged in nonproduction activities that involve significant levels of uncertainty such as exploration activities or the development of sites. Standard setting bodies such as the International Accounting Standards Board and the Financial Accounting Standards Board have addressed the financial reporting challenges in the extractive industry by allowing a significant amount of accounting flexibility in industryspecific accounting standards, particularly in relation to the accounting treatment of exploration and evaluation expenditure. Therefore, secondly this study examines whether the choice of exploration accounting policy has an effect on the value relevance of information disclosed in the financial reports. The findings show that, in general, the Successful Efforts method produces value relevant information in the financial reports of profitable extractive firms. However, specifically in the oil & gas sector, the Full Cost method produces value relevant asset disclosures if the firm is lossmaking. This indicates that investors in production and non-production orientated firms have different information needs and these needs cannot be simultaneously fulfilled by a single accounting policy. In the mining sector, a preference by large profitable mining companies towards a more conservative policy than either the Full Cost or Successful Efforts methods does not result in more value relevant information being disclosed in the financial reports. This finding supports the fact that the qualitative characteristic of prudence is a form of bias which has a downward effect on asset values. The third aspect of this study is an examination of the effect of corporate governance on the value relevance of disclosures made in the financial reports of extractive firms. The findings show that the key factor influencing the value relevance of financial information is the ability of the directors to select accounting policies which reflect the economic substance of the particular circumstances facing the firms in an effective way. Corporate governance is found to have an effect on value relevance, particularly in the oil & gas sector. However, there is no significant difference between the exploration accounting policy choices made by directors of firms with good systems of corporate governance and those with weak systems of corporate governance.

The contribution of enterprise systems to core capabilities: the case of asset lifecycle management in the utilities sector

The desire to obtain competitive advantage is a motivator for implementing Enterprise Resource Planning (ERP) Systems (Adam & O’Doherty, 2000). However, while it is accepted that Information Technology (IT) in general may contribute to the improvement of organisational performance (Melville, Kraemer, & Gurbaxani, 2004), the nature and extent of that contribution is poorly understood (Jacobs & Bendoly, 2003; Ravichandran & Lertwongsatien, 2005). Accordingly, Henderson and Venkatraman (1993) assert that it is the application of business and IT capabilities to develop and leverage a firm’s IT resources for organisational transformation, rather than the acquired technological functionality, that secures competitive advantage for firms. Application of the Resource Based View of the firm (Wernerfelt, 1984) and Dynamic Capabilities Theory (DCT) (Teece and Pisano (1998) in particular) may yield insights into whether or not the use of Enterprise Systems enhances organisations’ core capabilities and thereby obtains competitive advantage, sustainable or otherwise (Melville et al., 2004). An operational definition of Core Capabilities that is independent of the construct of Sustained Competitive Advantage is formulated. This Study proposes and utilises an applied Dynamic Capabilities framework to facilitate the investigation of the role of Enterprise Systems. The objective of this research study is to investigate the role of Enterprise Systems in the Core Dynamic Capabilities of Asset Lifecycle Management. The Study explores the activities of Asset Lifecycle Management, the Core Dynamic Capabilities inherent in Asset Lifecycle Management and the footprint of Enterprise Systems on those Dynamic Capabilities. Additionally, the study explains the mechanisms by which Enterprise Systems sustain the Exploitability and the Renewability of those Core Dynamic Capabilities. The study finds that Enterprise Systems contribute directly to the Value, Exploitability and Renewability of Core Dynamic Capabilities and indirectly to their Inimitability and Non-substitutability. The study concludes by presenting an applied Dynamic Capabilities framework, which integrates Alter (1992)’s definition of Information Systems with Teece and Pisano (1998)’s model of Dynamic Capabilities to provide a robust diagnostic for determining the sustained value generating contributions of Enterprise Systems. These frameworks are used in the conclusions to frame the findings of the study. The conclusions go on to assert that these frameworks are free - standing and analytically generalisable, per Siggelkow (2007) and Yin (2003).

Reflections on the transformation of my meaning making to support the organic growth of a firm

The objective of my Portfolio is to explore the working hypothesis that the organic growth of a firm is governed by the perspectives of individuals and such perspectives are governed by their meaning-making. The Portfolio presents explorations of the transformation of my meaning making and in adopting new practices to support the organic growth of a firm. I use the work of other theorists to transition my understanding of how the world works. This transition process is an essential tool to engage with and understand the perspectives of others and develop a mental capacity to “train one’s imagination to go visiting” (Arendt, 1982; p.43). The Portfolio, therefore, is primarily located in reflective research. Using Kegan’s (1994) approach to Adult Mental Development, and Sowell’s (2007) understanding of the visions which silently shape our thoughts I organise the developments of my meaning making around three transformation pillars of change. In pillar one I seek to transform an unthinking respect for authority and break down a blind pervasiveness of thought within my reasoning process arising from an instinct for attachment and support from others whom I trust. In pillar two I seek to discontinue using autocratic leadership and learn to use the thoughts and contributions of a wider team to make improved choices about uncertain future events. In pillar three I explore the use of a more reflective thinking framework to test the accuracy of my perceptions and apply a high level of integrity in my reasoning process. The transformation of my meaning making has changed my perspectives and in turn my preferred practices to support the organic growth of a firm. I identify from practice that a transformative form of leadership is far more effective that a transactional form of leadership to stimulate the trust and teamwork required to sustain the growth a firm. Creating an environment where one feels free to share thoughts and feelings with others is an essential tool to build a team to critique the thoughts of one other. Furthermore, the entrepreneurial wisdom to grow a firm must come from a wider team, located both inside and outside the boundaries of a firm. No individual or small team has the mental capacity to provide the entrepreneurship required to drive the organic growth of a firm. I address my Portfolio to leaders in organisations who have no considered framework on the best practices required to lead a social organisation. These individuals may have no sense of what they implicitly believe drives social causation and they may have no understanding if their meaning making supports or curtails the practices required to grow a firm. They may have a very limited capacity to think in a logical manner, with the result they are using guesses from their ‘gut’ to make poor judgements in the management of a firm.

The synthesis and biological evaluation of lanostane and cholestane-type natural products

The main objective of this thesis is to outline the synthetic chemistry involved in the preparation of a range of novel lanostane and cholestane derivatives, and subsequent investigation into their biological activity in cancer cells. The biological results obtained throughout the project have driven the strategic synthesis of new compounds, in an effort to optimise the anti cancer potential of lanostane and cholestane derivatives. The first chapter begins with an overview of steroidal compounds and details a literature review of the natural sources of these moieties, as well as their biosynthesis and reported synthetic derivatives. The biological activity of interesting natural and synthetic analogues is also discussed. In addition, an insight into some currently prescribed pharmaceutical compounds, with functional groups relevant to this project, is presented. The second chapter discusses the methods employed for the synthesis of these novel lanostane and cholestane derivatives, and comprises three main sections. Firstly, various oxidation products of lanosterol are synthesised, mainly via epoxidations of the C-8,9 and C- 24,25 alkenes, and also allylic oxidations at these positions. Secondly, amine derivatives of lanosterol are formed by cleaving the lanostane side chain, thereby yielding a new cholestane nucleus, and performing several reductive aminations on the resulting key aldehyde intermediates. Various amines such as piperidine, morpholine, diethylamine and aniline are employed in the reductive amination reactions to yield novel cholestane steroids with amine side chains. Finally, starting from stigmasterol and proceeding with the same methodology of cleaving the steroidal side chain and subsequently performing reductive aminations, novel cholestane derivatives of the biologically active amines are synthesised. The cytotoxicity of these compounds against CaCo-2 and U937 cell lines is presented in terms of percentage viability of cells, IC50 value and apoptosis. The MTT assay is used to determine the percentage viability of cells, and the IC50 data is generated from the MTT results. Apoptosis is measured in terms of fold increase relative to a carrier control. In summary, the compounds formed are discussed in terms of chemical synthesis, spectroscopic interpretation and biological activity. The main reaction pathways involved in the chemistry within this project are various oxidations and reductive amination. The final chapter is a detailed account of the full experimental procedures for the compounds synthesised during this work, including characterisation using spectroscopic and analytical data.

Designing tools that enhance communication and understanding between multiple stakeholders: the case of mobile payment value networks

The pervasive use of mobile technologies has provided new opportunities for organisations to achieve competitive advantage by using a value network of partners to create value for multiple users. The delivery of a mobile payment (m-payment) system is an example of a value network as it requires the collaboration of multiple partners from diverse industries, each bringing their own expertise, motivations and expectations. Consequently, managing partnerships has been identified as a core competence required by organisations to form viable partnerships in an m-payment value network and an important factor in determining the sustainability of an m-payment business model. However, there is evidence that organisations lack this competence which has been witnessed in the m-payment domain where it has been attributed as an influencing factor in a number of failed m-payment initiatives since 2000. In response to this organisational deficiency, this research project leverages the use of design thinking and visualisation tools to enhance communication and understanding between managers who are responsible for managing partnerships within the m-payment domain. By adopting a design science research approach, which is a problem solving paradigm, the research builds and evaluates a visualisation tool in the form of a Partnership Management Canvas. In doing so, this study demonstrates that when organisations encourage their managers to adopt design thinking, as a way to balance their analytical thinking and intuitive thinking, communication and understanding between the partners increases. This can lead to a shared understanding and a shared commitment between the partners. In addition, the research identifies a number of key business model design issues that need to be considered by researchers and practitioners when designing an m-payment business model. As an applied research project, the study makes valuable contributions to the knowledge base and to the practice of management.

Quantifying the value of improved wind energy forecasts in a pool-based electricity market

This work illustrates the influence of wind forecast errors on system costs, wind curtailment and generator dispatch in a system with high wind penetration. Realistic wind forecasts of different specified accuracy levels are created using an auto-regressive moving average model and these are then used in the creation of day-ahead unit commitment schedules. The schedules are generated for a model of the 2020 Irish electricity system with 33% wind penetration using both stochastic and deterministic approaches. Improvements in wind forecast accuracy are demonstrated to deliver: (i) clear savings in total system costs for deterministic and, to a lesser extent, stochastic scheduling; (ii) a decrease in the level of wind curtailment, with close agreement between stochastic and deterministic scheduling; and (iii) a decrease in the dispatch of open cycle gas turbine generation, evident with deterministic, and to a lesser extent, with stochastic scheduling.

IS capability assessment - the MIND canvas

With the increasing ubiquity and growing pervasiveness of Information Systems (IS) in todays’ organisations, one of the capabilities of essential value to an organisation is its IS/IT (henceforth IS) capability. However, despite this increasing importance of the IS capability, research has barely focused on providing a measure for assessing the IT capability of an organization. In overview, IS capability has contributed significantly in understanding how information technology remains a valuable component of any modern day firm (Bharadwaj 2000, Santhanam and Hartono 2003). While these prior research focus in itself is of value in establishing the importance of IS capability, this current study posits that this research area is attaining maturity and it is about time we extend this stream to provide a measure for assessing and evaluating the IS capability that defines an organization. To borrow a quote from Peter Drucker - “if it can be measured; it can be improved”.