The market valuation of environmental capital expenditures by pulp and paper companies

The objective of this study is to examine the market valuation of environmental capital expenditure investment related to pollution abatement in the pulp and paper industry. The total environmental capital expenditure of $8.7 billion by our sample firms during 1989-2000 supports the focus on this industry. In order to be capitalized, an asset should be associated with future economic benefits. The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms' environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry. We estimate average unbooked liabilities of $560 million for high-polluting firms, or 16.6 percent of market capitalization.

Multiple directorships and corporate performance in Australian listed companies

How many directorships are too many? Globally, normative advice emphasises the importance of limiting the number of directorships any individual should hold due to the workloads they entail. However, there is little empirical evidence to support this view. Rather, there is a strong tradition of supporting multiple directorships as a mechanism for the firm to co-opt external resources. To explore the issue of director workloads and multiple directorships, we first consider the issues related to multiple directorships and outline the conclusions of extant international and Australian studies into multiple directorships. We then detail our objectives in undertaking this research and our approach to data collection. Our findings indicate that the incidence of multiple directorships in Australian listed companies is low. We also find that many of the apparent examples of multiple directorships are due to related entities, which share common directors and, due to the nature of these entities, have much lower workload requirements. Further, there does not appear to be any relationship between holding multiple directorships and firm financial performance. Finally, we discuss the implications for boards and those interested in governance, particularly the need to ensure governance recommendations and guidelines reflect empirical findings. We offer one solution to address the concerns of boards, investors, other stakeholders and the community regarding multiple directorships: board and individual director evaluations.

The use of internal audit by Australian companies

Purpose – The purpose of this study is to explore the voluntary use of internal audit by Australian publicly listed companies and to identify factors that lead listed companies to have an internal audit function. Design/methodology/approach – Drawing on the Institute of Internal Auditors' definition of internal auditing, the paper predicts that internal audit use is associated with factors related to risk management, strong internal controls and strong corporate governance. To test the predictions, the study combines data from a survey of listed companies with information from corporate annual reports. The paper also provides descriptive information on the use of internal audit. Findings – The results indicate that only one-third of the sample companies use internal audit. While size appears to be the dominant driver, there is also a strong association between internal audit and the level of commitment to risk management. However, the study finds only weak support for an association between the use of internal audit and strong corporate governance. Research limitations/implications – A limitation of our study is that some of the variables in the model may not be good proxies for the factors being measured. Refinement of the model and the variables used provides an opportunity for future research. Practical implications – The limited use of internal audit by Australian companies has important implications for sound corporate governance. Originality/value – This is the first study that identifies factors associated with the use of internal audit by Australian listed companies.