Value relevance of information in hi-tech industries in Australia : accounting information and intangible asset disclosures

The main objective of this study is to test the value relevance of financial and non-financial information in high-tech industries in Australia. Ninety-one companies were selected from the sectors of Pharmaceuticals, Biotechnology and Life Sciences; Technology, Hardware and Equipment; and Telecommunication Services of ASX for the analysis. Both financial and non-financial sections of annual reports were scrutinized in order to obtain data for the analysis. The unaudited sections of annual reports were particularly analysed using NVivo to obtain the word-count of intangible assets. Ohlson’s (1995) Equity Valuation Model (modified for the intangible assets disclosures) was explicitly applied to examine the value relevance of financial and non-financial information. The overall results provide evidence that book value is the most significant factor and earnings are the least significant factor in deciding share prices in high-tech industries in Australia. This finding supports the previous studies that showed value relevance declined in earnings but increased in book value. This research proved that voluntary disclosures of intangible assets are value relevant, providing support for the previous US and Australian studies and the conclusion that investors probably increasingly rely upon alternative information sources.

External policy influence and higher education reform in Ethiopia : understanding symbolic power of the World Bank

Increasingly national policy processes are intersected with and affected by global policy actors and ideas. In aid-recipient countries such as Ethiopia, donors use financial and non-financial means to influence national policy decisions and directions. This paper is about the non-financial influence of the World Bank (WB) in the Ethiopian higher education policy reform. Using Pierre Bourdieu’s concept of symbolic power as a ‘thinking tool’, the paper aims to shed light on forms of symbolic capital that the Bank uses to generate a ‘misrecognisable’ form of power that regulates the HE policy process in Ethiopia. The findings show that the WB transforms its symbolic capital of recognition and legitimacy to establish a ‘shared misrecognition’ and thereby make its policy prescriptions implicit and hence acceptable to local policy agents. The Bank uses knowledge-based regulatory instruments to induce compliance to its neoliberal policy prescriptions. The paper therefore underscores the value of symbol power as an analytical framework to understand elusive but critical role of donors in policy processes of aid recipient countries.

Firm characteristics, board diversity and corporate social responsibility: evidence from Bangladesh

Purpose – This study aims to purport to investigate the relationship between firm size, profitability, board diversity (namely, director gender and nationality) and the extent of corporate social responsibility (CSR) disclosures within a developing nation context.
Design/methodology/approach – The dataset comprises 116 listed Bangladeshi non-financial companies for the period of 2005-2009. A CSR disclosure checklist was used to measure the extent of CSR disclosures in the annual reports and a multiple regression analysis to examine its association with firm characteristics and two board diversity features – female and foreign directorship.

Findings – Results indicate that large and more profitable firms provide more CSR disclosures. It was also found that female directorship has a negative association with CSR disclosures, while foreign directorship has a positive impact on such disclosures. This paper documents that CSR disclosures decrease further when family ownership is higher and there are more female directors on the board.

Originality/value – This study extends empirical evidence on the association between firm characteristics, board diversity and CSR disclosure practices from a developing nation context. Furthermore, this study also reveals that female directors’ impact on firm disclosures may differ between developing and developed nations, and somewhat impeded in the latter. This paper also provides empirical evidence on the importance of appointment of foreign nationals on the boards of developing countries to influence CSR practices.

Multiple states of financially distressed companies: Tests using a competing-risks model

This study examines the determinants of multiple states of financial distress by applying a competing-risks model. It investigates the effect of financial ratios, market-based variables and company-specific variables, including company age, size and squared size on three different states of corporate financial distress: active companies; distressed external administration companies; and distressed takeover, merger or acquisition companies. A sample of 1,081 publicly listed Australian non-financial companies over the period 1989 to 2005 using a competing-risks model is used to determine the possible differences in the factors of entering various states of financial distress. It is found that specifically, distressed external administration companies have a higher leverage, lower past excess returns and a larger size; while distressed takeover, merger or acquisition companies have a lower leverage, a higher capital utilisation efficiency and a larger size compared to active companies. Comparing the results from both the single-risk model and the competing-risks model reveals the need to distinguish between financial distress states.

The economic significance of CDS price discovery

© 2015 Springer Science+Business Media New York Between 2005 and 2009, we document evident time-varying credit risk price discovery between the equity and credit default swap (CDS) markets for 174 US non-financial investment-grade firms. We test the economic significance of a simple portfolio strategy that utilizes fluctuation in CDS spreads as a trading signal to set stock positions, conditional on the CDS price discovery status of the reference entities. We show that a conditional portfolio strategy which updates the list of CDS-influenced firms over time, yields a substantively larger realized return net of transaction cost over the unconditional strategy. Furthermore, the conditional strategy’s Sharpe ratio outperforms a series of benchmark portfolios over the same trading period, including buy-and-hold, momentum and dividend yield strategies.

Stakeholders’ perspectives on the role of regulatory reform in integrated reporting

This paper reports on an exploratory study of the preferences of users of non-financial reporting for regulatory or voluntary approaches to integrated reporting (IR). While it is well known that companies prefer voluntary approaches to non-financial reporting, considerably less is known about the preferences of the users of non-financial information. IR is the latest development in attempts over 30 or more years to broaden organisational non-financial reporting and accountability to include the wider social and environmental impacts of business. It promises to provide a more cohesive and efficient approach to corporate reporting by bringing together financial information, operational data and sustainability information to focus only on material issues that impact an organisation’s ability to create value in the short, medium and long term. The study found more support for voluntary approaches to IR as the majority of participants thought that it was too early for regulatory reform. They suggested that IR will become the reporting norm over time if left to market forces as more and more companies adopt the IR practice. Over time IR will be perceived as a legitimate practice, where the actions of integrated reporters are seen as desirable, proper, or appropriate. While there is little appetite for regulatory reform, half of the investors support mandatory IR because, in their experience, voluntary sustainability reporting has not led to more substantive disclosures or increased the quality of reporting. There is also evidence that IR privileges financial value creation over stewardship, inhibiting IR from moving beyond a weak sustainability paradigm.

Corporate political connections, agency costs and audit quality

Purpose – The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach – A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings – Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications – The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value – To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

Effects of financial disadvantage on use and non-use of after hours care in Australia

Policy addressing the provision of primary care after hours (AH) is currently in flux because of concerns about equity of access and cost. In this study we examine the effects of socioeconomic disadvantage on access to AH care and episodes of not seeking AH care when needed among users and non-users of AH care. The effects of health on these relationships were also explored. The total sample consisted of 5538 users of AH care and 891 non-users of AH care who were randomly selected for telephone interviews. Factors determining AH care included accessibility that is structural barriers to use of care such as distance and transport, as well as affordability and availability. Logistic regression was used to determine the impact of financial disadvantage on episodes of not seeking AH care. Barriers to use of AH care and household health were subsequently added to the models to assess their impact. The results suggested that there were inequities in access to AH care but these were a function of barriers to AH care use rather than financial disadvantage per se. Accessibility and availability were significant barriers to use of AH clinics among both user and non-user samples. Affordability was only a significant barrier among users of AH care. The study suggests that policy aimed at reducing these barriers may effectively address inequities in AH care but that to be optimally effective policy change would also need to be accompanied by changes in consumer awareness.

National and international financial reporting standard convergence and the relevance for non-participants in capital markets : a preparer perspective

This study presents some implications of recent policy moves to enhance the harmonization of financial reporting and disclosure by adopting international financial reporting standards. In particular the impact on small organizations that do not participate in capital markets is considered. The results of a survey of practitioners indicate a perception that the non-capital market sector is likely to be significantly affected by additional reporting burden that convergence with international financial reporting standards imposes. On the whole the results show there was concern that the traditional users of the financial reports of organizations who do not participate in capital markets, would have limited if any, use for financial reports that conformed to international financial reporting standards, The results of this study have implications for nations such as Malaysia and New Zealand, which are currently engaging in the differential reporting debate.

Organizational commitment in Chinese small- and medium-sized enterprises: the role of extrinsic, intrinsic and social rewards

This study investigates the relationship between organizational rewards and employee commitment in Chinese small- and medium-sized enterprises (SMEs). Hierarchical regression analysis was utilized to analyse survey data from 286 employees of 11 organizations. In line with what was hypothesized extrinsic rewards were found to be strongly related to both affective and continuance commitment, whereas satisfaction with supervision and role clarity positively influenced affective commitment. In contrast to previous empirical findings, autonomy and training provision were only found to influence continuance commitment. These findings have significant managerial implications regarding the utility of providing organizational rewards to enhance the commitment of Chinese employees. In order to promote employee commitment, SME managers could start by giving their employees greater autonomy and clarity regarding their role in the organization, as well as improving supervisor support. These are relatively inexpensive measures compared to the costly alternatives of improving extrinsic benefit packages and investing in employee training.

Financial integration: the role of tradable and non-tradable goods

This paper examines the potential benefits of financial integration focusing on the role of tradable and non-tradable goods. We construct a new country-level index for tradability of output using disaggregate sector level data on output, imports and exports. Cross-country regressions show that for the overall sample, there is a weak positive interaction of tradibility of output and financial integration. When we focus on those countries within a middle range of institutional development, and thus within the middle range of income per capita, for these countries, the experience of integration is tempered significantly by increasing tradability of output. Sector-level regressions confirm the negative and significant interaction of trade and financial integration for this sample of countries.

Does financial news predict stock returns? New evidence from Islamic and Non-Islamic stocks

The paper extends the time-series financial news data set constructed by Garcia (2013) and uses it to examine whether financial news predicts returns of Islamic stocks differently compared to non-Islamic (conventional) stocks. We find that they do. First, while both positive and negative worded news predict most Islamic and conventional stock returns, positive words have a larger impact on both types of stock returns. Second, shock to returns from financial news reverses only in part for some stocks. Third, for a mean-variance investor, investing in Islamic stocks is relatively more profitable than investing in the corresponding conventional stocks. Fourth, we show that profits are robust to a range of time-series risk factors, namely, market risk, size-based risk, and momentum-induced risk.

Exempt treatment of financial intermediation services under a value-added tax: an assessment of alternatives

Most countries with a value-added tax (VAT) exempt financial intermediation services from the tax. While exemption is generally perceived to be undesirable, it is also widely regarded as unavoidable because of technical difficulties in applying VAT to these services. This article reviews the standard rationale for exempt treatment and then considers the relative merits of two recent challenges raised in the tax literature. The first challenge involves the application of cash flow taxation to financial intermediation services in a manner that is consistent with an invoice/credit VAT (which is the dominant form). The second challenge proposes a comprehensive system of zero-rating of financial intermediation services, which is supported by a characterization of the household consumption of such services as non-taxable. The author argues that each of these alternatives to an exemption system suffers from both theoretical and practical implementation difficulties that make maintenance of exempt treatment the preferred approach, at least in the short term. There is, however, a simpler alternative to these fundamental reform options, involving modification of just one aspect of an exemption system to relieve some of its more problematic aspects. Many of the interpretative problems and associated inefficiencies that plague an exemption system arise from the need to distinguish between taxable and exempt financial services. The author argues that these difficulties can be eliminated, to a large extent, by basing the distinction on the form of prices. In support of this approach, he points out that it is consistent with the underlying reasons for the application of exempt treatment. The author considers a number of other possible modifications, but these are either rejected outright or viewed with a healthy skepticism. For example, the author is critical of the apparent rationale for the application of cash flow taxation to property and casualty insurers. He also rejects proposals that accept some looseness in the formulaic allocation by financial intermediaries of the costs of business inputs between exempt and taxable services for input credit purposes. In his view, an explicit reliance on pricing structures to draw the boundary between exempt and taxable services is preferable to the provision of relief for blocked input tax credits of financial intermediaries. Finally, the author is skeptical of the case for a policy response intended to address the tax bias under an exemption system for financial intermediaries to insource supplies.

Financial accounting reforms in the Australian public sector: an episode in institutional thinking

In recent years in Australia, accounting regulations have been developed that require the adoption of commercial accounting and reporting practices by public-sector organisations, including the recognition of cultural, heritage and scientific collections as assets by non-profit cultural organisations. The regulations inappropriately apply traditional accounting concepts of accountability and performance, notwithstanding that the primary objectives of many of the organisations affected are not financial. This study examines how this was able to occur within the ideas outlined in Douglas’s (1986) How Institutions Think. The study provides evidence to demonstrate that the development; promotion, and defense of the detailed accounting regulations were each constrained by institutional thinking and, as a result, only certain questions were asked and many problems and issues associated with the regulations were not addressed. Thus, it seeks to further our understanding of the nature and limits of change in accounting and the role of institutions in promoting and defending changes to accounting practice.