The information content of directors' trades: empirical analysis of the Australian market

We examine the trading activities of directors in shares of their own companies on the Australian Stock Exchange during the July-December 2005 period. We find that directors of small companies in particular earn abnormal return after both their 'Purchase' and as well as their 'Sale' trade. Directors of these companies have an uncanny ability to time the market by trading when mispricing is greatest, and are able to predict the future performance of their firms in short run. For directors of medium and large companies, we find evidence that 'Sale' trades are the ones which work as loss avoiders. Outsiders recognise to some extent that directors' trades are informative, however they are slow to incorporate the new information into prices, refuting much of the market efficiency literature.

Response rates in Australian market research

RICA commissioned Deakin University to “establish whether response rates are in decline in the Australian market research industry and to identify, as far as possible, the reasons for these declines if they exist. This is likely to involve a review of previous research, a literature review and collection of data on response rates provided on a confidential basis and with the assistance of AMSRO to facilitate data provision.”

Attempts were made to contact all listed market research companies in Australia, including all major internet panel companies. While industry co-operation was not high with the study, sufficient data was provided to depict current response rates and to show how they had declined over time. Because of the low contactability issues, this Report proposes the use of better methods to compute the reliability of survey estimates by taking account of past survey results.

The literature review revealed a wealth of recent studies, with the main emphasis being on studies of telephone and internet surveys. This review of the research produced 34 evidence-based guidelines for social researchers. While some of these reflect current practice, the emergence of the internet as the main survey method raises a number of disclosure and sampling issues. Esomar (2012) has produced 28 issues to be raised with providers, which sets the basis for good industry practice. This suggests an opportunity for the industry to adopt these standards as its own and to conduct training courses for major clients and suppliers. There are many panel providers, some of whom are not AMSRO members. AMSRO may need to examine what role it can play in mandating or encouraging adherence to these standards as a way of promoting the industry.

Talks with key industry people, as well as the literature, have revealed the importance of blended surveys, where multiple contact and response mechanisms are used. Particularly where an internet panel is used as one source, this poses representativeness and weighting issues which are difficult to resolve. The Report recommends that where blended survey methods are used, measures be taken to measure contactability in the other contact media, along with more sophisticated weighting schemes. The industry should examine its training courses to ensure that industry expertise keeps pace with these developments.
Summary of Results

The results focus on two main collection methods – the telephone and the internet. As far as the telephone is concerned response rates have been in a gradual decline the last decade. This outcome is hard to detect because the data show considerable fluctuations from one survey wave to the next. Among cold-calling surveys, telephone response rates are typically below 10%, for a range of topics and survey types. Co-operation rates, (the ratio of obtained interviews to refusals) are typically below 0.2 (that is below one interview to five refusals). Telephone interviews with clients have a higher response rate – typically above 20% with co-operation rates above 1.0. It would appear that some topics, such as financial services, may induce a lower level of co-operation. Government sponsored surveys have higher response rates, at times over 50%, but even here a sharp decline in response rates over time for one long running monitor was observed. Co-operation rates were also higher in government sponsored surveys.

One long data series from a telephone omnibus suggested that the “Do Not Call Register” which began in May, 2007 had some positive effects for the industry. Initially there was a spike in both response rates and co-operation. Although this was relatively short-lived, response rates thereafter declined more slowly and co-operation rates were somewhat higher and remained stable. These conclusions should be regarded as tentative as more data series would really be necessary to see if similar trends occurred elsewhere.

As far as the internet is concerned, panel response rates are around the 20% mark and appear to be relatively stable over the last few years. In this case, the gross response rate is the number of interviews divided by the number of invitations sent. As the number of invitations may be a function of the need to fill a survey quickly, it should be considered a gross indicator of response. In order to capture this phenomenon, a further measure has been devised, termed the “attempt rate” which measures the percentage of people who attempt to participate once sent the invitation. The available data suggests that it is relatively stable. However, it is also somewhat susceptible to the time the survey was left open. Finally, a co-operation rate was also calculated. It measures the ratio of completed to terminated interviews, typically at least five interviews to each termination, but often much higher. This measure is not directly comparable with the co-operation rate in telephone surveys because it cannot take account of the number of eligible people on the panel who open the invitation, see the company doing the survey or its length and decide not to take the survey. For internet client studies, response rates were typically somewhat higher than shown for the panels, but there was marked variability.

There was only one study provided of intercept interviews. It showed response rates of over 60% and co-operation rates of nearly 2 interviews per refusal. A strength and a weakness of intercept interviewing is the ability to be selective in who is asked to participate. As for mail, one government sponsored mail survey from 2010 is reported, with a response rate over 50%. The previous review contains more data, as mail appears to be infrequently used within the industry for commercial surveys.

While surveys remain a major and highly effective tool for the industry and its clients, issues with contactability and co-operation mean that even closer attention is needed to survey design, sampling, weighting and analysis than was previously the case.

Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

Stock market liquidity and firm value : an empirical examination of the Australian market

We document a positive relation between stock liquidity and firm value. We examine the mechanism through which stock market liquidity enhances firm value by dividing firm value, as measured by Tobin’s Q, into three components, namely, operating income to price, leverage, and operating income to assets. Using the switch to broker anonymity as an exogenous shock to market liquidity, we show that the increase in liquidity around the shock leads to an increase in firm value. Our results suggest that higher firm value for more liquid stocks seems to stem from enhanced stock prices rather than from better operating performance.

Short-run performance of recent Australian on-market share buy-back announcements

Share buy-backs (or share repurchases) have become increasingly popular among Australian companies during the recent times. One of the aims of share buy-back is to increase the shareholders' wealth by increasing the market price of company shares. While there are several ways of buying backs shares, on-market buy-backs is the most popular method of share repurchase in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the short-run market performance of these recent on-market buy-back announcements.

Short-term effect of on-market buy-back announcements on the share price is an issue, which is theoretically interesting and practically important. Buy-back announcements are believed to convey a signal to the market (i.e., signalling effect). If the market considers this signal positively, the short-run price of the shares would increase. If the signal were considered negatively, the short-run price of shares would decrease. If there is no signalling content or the signal is neutral the price would remain the same. In this study, signalling effect of share buy-back announcements is empirically examined using most recent Australian data. The total population of on-market buy-back announcements that have been lodged with Australian Stock Exchange by Australian listed companies during the period from 1 January 2000 to 10 March 2003 are included in this study. The abnormal market return over the short-run (announcement day and 10 trading days centred on the announcement date) is examined using the All Ordinaries Accumulation Index as the reference portfolio. The daily abnormal returns (AR) and cumulative abnormal returns (CAR) during the event period are computed. The results indicate that the Australian market generally positively reacts to on-market buy-back announcements.

The volume and volatility relation in the Australian stock market

The thesis studies the volume-volatility relation in the Australian Securities Market. It is concluded that the number of trades is the most important variable driving realized volatility. The average trade size is significant but its explanatory power is only trivial. Order imbalance does not drive volatility in the Australian market.

Information signalling of common stock repurchase announcements: Australian evidence

Stock repurchases (or share buy-backs) have become increasingly popular among Australian companies. One of the main aims of announcing a stock repurchase by a listed company is signalling the market that its shares are currently underpriced. When market reacts to the signal, price of the shares is expected to increase immediately after the announcement. While there are several ways of repurchasing shares, 'on-market buy-backs' is the most popular method of stock repurchases in Australia. Australian listed companies have announced more than two hundred on-market share buy-backs over the past three years. The aim of this paper is to examine the information signalling effects of these on-market buy-back announcements. If the signal is considered positively (negatively) by the market, the price of the repurchasing company's shares should increase (decrease) immediately after the announcement. If there is no information content in the announcement, the price will remain the same. In this study, signalling effect of share buy-back announcements was examined using most recent Australian data. The total population of on-market buy-back announcements during the period from January 1, 2000 to March 10, 2003 was included. The abnormal market return over the short-run (announcement day and 9 trading days centred on the announcement date) was computed using the All Ordinaries Accumulation Index as the reference portfolio. The daily Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) during the event period were computed. The results strongly support the information-signalling hypothesis of share buy..backs. Australian market generally considers announcement of on~market share repurchases as signalling of insider information that shares are currently underpriced.

Adaptation and change in the Australian life insurance industry : an historical perspective

In the wake of the deregulation of the financial sector in Australia in the 1980s and 1990s the life insurance industry has undergone a period of rapid change and reorganisation. Part of this adjustment has been the move towards the integration of financial service provision and the rise of bancassurance. This paper investigates the strategies adopted by Australian life insurers as they moved into the increasingly competitive environment triggered by the lifting of government restrictions on banking practices. It compares the approach of life insurers with that adopted in an earlier period of expansion and change. During the 1950s and 1960s an influx of foreign owned insurance companies into the Australian market precipitated the diversification of domestic life insurers into other insurance markets. The catalyst for change in both cases was the change in information costs brought about by the change in the competitive environment. The experience of the Australian life insurance market would suggest that there is a link between changing information costs and changing organisational structures. However this link is circumscribed by the institutional environment.

Marketing research and its value: the experience of Australian organisations

There is a continuing need for organisations to identify the returns obtained from marketing research, such as direct knowledge acquisition or the indirect results of decisions made using this information (e.g., financial returns). This paper reports on a study based on a conceptual model proposed by earlier researchers that explored knowledge acquisition derived from marketing research, together with its dissemination and utilisation. An adequate fit for the model was found using primary data from a sample of decision-makers in Australian organisation. The findings of this empirical study show an association between marketing research, knowledge utilisation, and the performance of the organisations sampled.

Market research effectiveness : the effects of organisational structure, resource allocation and strategic type

According to the marketing literature and marketing textbooks, market research is required for successful marketing. However organisations differ in the way they both manage and resource their market research. This study hypothesised that market research effectiveness would be a function of internal research buying expertise, resource allocation and strategy. The research was conducted among a sample of 240 Australian marketing managers. Market research effectiveness was measured in terms of a) decision making support, b) contribution to marketing strategy, c) leveraging customer and competitor data, d) its ability to represent the "voice of the customer" and finally, e) bolstering the role of the marketing group and marketing manager within the organisation. The findings showed that having dedicated internal market researchers and allocating internal and external resources to the research function enhanced market research effectiveness. It was also found that organisations with an entrepreneurial strategic orientation were more likely to see value in the market research function, with these organisations being less likely to use market research for internal political purposes.

Mortgages and bonds: the asset management practices of Australian life insurers to 1960

Recent studies of the experience of the British life insurance industry indicate that a period of transition, and the development of more diversified investment strategies, began in the interwar period. Australian life insurers lagged behind their British counterparts in the introduction of such strategies. This paper investigates why this was the case. It argues that in the Australian market there was both a lack of opportunity and incentive to broaden asset portfolios. However, this did not mean that asset management practices did not advance. Australian life offices became progressively more sophisticated in their approach to portfolio management during this period. Developments in the interwar period provided a grounding for post-war expansion into the equity market.

The importance of overcoming cultural barriers in establishing brand names: an Australian company in China

Considering the importance of cross-cultural competencies in the context of rapid globalisation and the growth of China in the world economy, this paper uses case study methodology, to document the difficulties encountered by an Australian multinational beverage company, Foster’s, in attempting to establish its brand in China’s rapidly expanding market economy. Many of these related to culturally distinct attributes of the market, the consumer base and retail practices. The paper analyses these in terms of key concepts in marketing and cross-cultural business theory, in order to provide guidelines on how to overcome cultural barriers when establishing a foreign brand name in China. It also discusses the impact of cultural differences on brand loyalty after the establishment of the brand and on the sustainability of that brand. In attempting to assist foreign firms to succeed in the Chinese market, this paper offers suggestions that will help marketers to first understand the importance of cultural differences and then to succeed with further recommendations. Being a complex market and a market that is different from the Australian market, this is extremely valuable for those foreign brands entering China.