Are firms hedging or speculating? The relationship between financial derivatives and firm risk

The focus of this article is an investigation of the relationship between the use of financial derivatives and firm risk using a sample of Australian firms. Our results suggest that this relationship is nonlinear in nature. Specifically, the use of financial derivatives is associated with a risk reduction for moderate derivative users. Derivative usage among extensive derivative users, on the other hand, appears to lead to an increase in firm risk. Nevertheless, compared to firms that do not make use of derivatives, there is no evidence that extensive derivative users are exposed to a risk level in excess of that of nonderivative users. The results are, therefore, indicative of a hedging motive behind the use of financial derivatives.

Keeping talents for advancing service firms in Asia

Purpose – Skill shortages worldwide have intensified the need for talent management. Few papers examine the pattern of human resource (HR) and talent management practices that help retain competent employees among service multinational companies (MNCs) in Asia. The purpose of this paper is to map out a number of HR practices used by service companies and to examine the effect of talent retention as perceived by MNC managers on service delivery capacity and business growth.

Design/methodology/approach – A survey data of 281 service MNCs in six Asian countries (namely Indonesia, Malaysia, Philippines, Singapore, Taiwan, and Thailand) are used to compare country and sectoral differences. Standard multiple regression analysis is conducted to test the link between HR practices, employee retention, and service firm performance.

Findings – The results confirm that there are statistically significant linkages between HR practices, talent retention and firm performance. In particular, various skill training and development programs are seen to be significantly associated with capacity to deliver quality service and on firm growth as perceived by managers surveyed. Informal recruitment methods that are used more by Asian-bred firms have contributed to better retention rates. Not all formalised HR practices lead to talent retention; and the degree to which HR is perceived to have impacted on firm performance varies.

Research limitations/implications – The paper focuses on examining the perceptual impacts of human resource management (HRM) practices on firm performance, rather than actual HRM impacts. The interpretation of results should be taken with caution.

Originality/value – Talent management is influenced by country specific variables. This paper shows how important it is for service firms to focus on strategic selection of both formal and informal HR practices in order to deliver high quality service and to drive service firm growth.

Institutional environment, managerial attitudes and environmental sustainability orientation of small firms

This study examines the direct impact of three dimensions of the institutional environment on managerial attitudes toward the natural environment and the direct influence of the latter on the environmental sustainability orientation (ESO) of small firms. We contend that when the institutional environment is perceived by owner–managers as supportive of sound natural environment management practices, they are more likely to develop a positive attitude toward natural environment issues and concerns. Such owner–manager attitudes are likely to lead to a positive and proactive orientation of their firms toward environmental sustainability. The study uses survey data from 166 small manufacturing firms located in three Philippine cities. First, the study develops and tests the measurement models to examine the validity of the constructs representing the firm’s institutional environment, managerial attitudes toward the natural environment and the ESO of firms. Second, the study develops and tests the structural models examining the institutional environment–managerial attitudes–ESO linkages. Multi-sample invariance structural model analysis shows the mediating role of managerial attitudes in the institutional environment–ESO nexus. The findings show that ESO is a construct comprising three dimensions: knowledge of environmental issues, sustainable practices and commitment toward environmental sustainability. The cognitive, regulatory and normative elements of the institutional environment are strongly linked to positive managerial attitudes toward environmental sustainability, which in turn, positively influences the firm’s overall ESO. Managerial attitudes play a mediating role in the institutional environment–ESO linkages. The managerial, practical, research and policy implications of the research findings are discussed.

An introduction to CLERP 9

An Introduction to CLERP 9, as its title suggests, is aimed at providing legal practitioners and students with an overview of Australia’s corporate governance reforms, but more than that, it also analyses the events that led to the reforms and provides practical examples of how the amendments will change corporate practices.

The book begins by defining what is generally meant by good corporate governance. It then outlines the relevant recent events that led to introduction and commencement of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9) on 1 July this year. The corporate failures of Enron and HIH – and subsequent Royal Commission – in 2001, and the failure of private auditing firms to warn of their client’s problems are well summarised.

As well as the Sarbanes Oxley Act of 2002, the US equivalent to CLERP 9, the establishment of the ASX Corporate Governance Council and the release of its Principles of Good Corporate Governance and Best Practice Recommendations are examined in detail.

The book covers all the chief changes, including the new rules for audit independence, financial disclosure, whistleblowing, remuneration for directors and executives and continuous disclosure.

Throughout, the book provides a comprehensive and easy to understand commentary on how the CLERP 9 Act alters the Corporations Act 2001 and the ASIC Act 2001, as well as highlighting important changes that affect present practice. For example, the author notes that under the auditor independence rules, when an audit firm contravenes an independence requirement, liability is placed on all members and directors of the audit firm, not just the lead auditor responsible for a particular audit. This, he says, is aimed at introducing a “culture of compliance”.

As well as providing a quick reference guide to how the CLERP 9 Act amends the Corporations and ASIC Acts at the beginning of the book, the table at the end of the book comparing the corporate governance reforms in the US, UK and Australia will be very useful for practitioners trying to make sense of how multinational clients might be liable across different jurisdictions.

Monitoring and incentives of executives in risky firms : a test of the association with firm performance

This study investigates the relationship between a firm's risk and the effectiveness of the firm's corporate governance practices. Previous research investigating the relationship between corporate controls and firm performance has been mixed and often weak. Therefore, this study sets out to determine the efficiency of monitoring and incentive contracts given certain characteristics of the firm. That is, the study sets out to determine whether risk firms with higher monitoring and levels of incentives are associated with higher firm performance.
The results of this study of 282 firms demonstrate how the relationship between firm risk and performance is associated with the monitoring and incentive contracts used by these firms. In particular, the results of this study showed that the negative association between risk and firm performance is weakened when firms have stronger monitoring and incentive mechanisms. The particular contribution of this study is to show that the role of corporate governance variables infirm performance should be evaluated in the context of the firm's risk.

Critical factors influencing employment: a study of small manufacturing firms in South-East Australia

Compliance with legislation has been highlighted as a factor influencing the reluctance of small and medium sized enterprises to take on new employees. With the objective of determining factors influencing smaller firms in their employment decisions, mailed questionnaires were used to survey small to medium manufacturing businesses in the Australian States of Victoria and New South Wales. Significant critical factors and deterrents to further employment were identified.

An analysis of the association between firms' investment opportunities, board composition and firm performance

The purpose of this paper is to identify the variables that influence the board structure adopted by firms and the subsequent relationship to the firm's performance. The results of this study of 229 Australian firms show that firms' investment opportunities are strongly associated with a higher proportion of executive directors ("EDs") on the board. The results also show that the negative relationship between a firm's investment opportunity set ("IDS") and firm performance is weakened at higher levels of non-executive director board domination. These results have implications for policy setters and managers of firms with investment opportunities

Technical efficiency in Australian textile and clothing firms: evidence from the business longitudinal survey

This paper estimates technical efficiency of Australian textile and clothing firms based on the data obtained from the Business Longitudinal Survey (BLS) conducted by the Australian Bureau of Statistics (ABS). Using a Cobb Douglas stochastic production frontier the paper examines firm level technical efficiency in the time varying inefficiency effect model with technical inefficiency effects assumed as an independently distributed truncated normal variable. Estimates of the production frontier revealed significant but small elasticities of labour and capital for textile and clothing firms, respectively, and a negative (but insignificant) Hicks neutral technical change for both. Estimated coefficients of the explanatory variables for inefficiency effects indicated that technical efficiency varied significantly according to firms’ age, size, capital intensity, proportion of non-production to total workers and type of legal status. Predicted firm specific efficiency varied from 16 per cent to 95 per cent and mean efficiency ranged between 30 to 70 per cent. In view of these results policies have been suggested to improve technical efficiency of the firms as well as productivity growth of the sub sectors.

The online learning alchemist : preventing gold turning into lead

This paper addresses the creation of materials and resources for use in online learning, focusing on the new and emerging roles for teachers and learners in conjunction with developments in our understanding of the human-computer interface. As more educational providers adopt network-based technologies as delivery portals, the demand for skills in the creation of effective online resources is becoming critical. If we are to provide the learner with online resources that will enhance knowledge construction and the teacher with clear measures that these activities are effective, then we as resource developers must resurrect the role of what might be termed the online alchemist. Our first task is to ensure that new digital resources are not simply transferred from their original format but repurposed to ensure learner(s) accessing those resources are able to interact with both the content and their collaborative partners with new levels of flexibility and manipulation. We must transcend the too frequent use of technology as a means to replicate existing resources and conceptualise environments that engender new paradigms for teaching and learning. Our challenge remains to ensure the gold we have in effective teaching strategies and learning resources is not tarnished through ineffective applications within the online learning context. One strategy to achieve this is through proactive evaluation, a framework that integrates a set of factors and influences to better inform the development of online learning resources.

Management of the market research function in client firms

Companies vary in the way they structure their market research function. This was hypothesized to affect the perceived value of their research. A survey of 241 marketing managers in major Australian firms showed that structure positively affected the perceived value of market research information while bolstering the internal client’s position.