Assessing financial competence in older adults with cognitive impairment

One common problem brought before Courts and Tribunals in Australia is whether or not someone is able to manage his or her own financial affairs. The problem is that currently in Australia there are no universally agreed upon standards for assessing financial competence. The aim of this study was to examine the reliability and validity of a new measure of financial competence, The Financial Competence Assessment Inventory (FCAI), in assessing financial competency of older adults with a cognitive impairment. The sample comprised 18 older adults with acquired brain injury, 10 adults with schizophrenia, 21 adults with dementia and 27 older adults without cognitive impairment. Ages ranged from 55 to 91. Each participant was individually interviewed using the FCAI. The findings revealed that the FCAI is a reliable and valid assessment tool for assessing financial competence of older adults with different types and levels of cognitive impairment. In particular, the FCAI was able to distinguish between older adults with global brain impairment and older adults with specific brain impairment; and older adults who had a legal administrator and older adults who did not. In addition, using the FCAI it was possible to obtain a profile of participants’ strengths and weaknesses across six domains of financial competence including; everyday financial abilities, financial judgment, estate management, cognitive based financial tasks, debt management, and support resources. The FCAI has the potential to assist clinicians and legal decision-makers regarding ‘least restrictive alternatives’ when financial competence is in question.

Social responsibility and credit availability

There has been a widespread increase in the use of consumer credit and therefore consumer indebtedness. Some of this increase has been within that segment of the population least able to afford debt of any kind – welfare recipients. This qualitative study demonstrates some interesting attitudes to debt, as well as differences in peoples’ perceptions of acceptable debt and their debt-management strategies. This study suggests that action is required by those responsible for the marketing of credit to this vulnerable group and government policymakers to provide a socially responsible approach to manage this societal concern.

Short-term debt maturity, monitoring and accruals-based earnings management

Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm's creditworthiness is not in doubt. To explore the implications of these arguments on managers' earnings management incentives, we examine a sample of US firms over the period 2003-2006 and find that short-term debt is positively associated with accruals-based earnings management (measured by discretionary accruals), consistent with the financial distress theory. We also find that this relation is significantly weaker for firms that are of higher creditworthiness (i.e. investment grade firms), consistent with monitoring benefits outweighing financial distress reasons for managing earnings.

The impact of ownership structure on corporate debt policy : two stage least square simultaneous model approach for post crisis period : evidence from Kuala Lumpur Stock Exchange

Ownership concentration as a governance mechanism has received considerable attention among academician, practitioners as well as policy makers because large-block shareholders are increasingly active in their demands that corporations adopt effective governance mechanisms to control managerial decisions, which include corporate debt policy. Earlier study on the agency model of the firm widely recognizes that the managerial ownership and external debt play an important role in mitigating agency conflicts and enhancing firm value. They also found that increase in the external monitors, for example the institutional investors, can actually play a useful role in limiting agency problems in the firm. This paper, using 100 Composite Index companies from Brusa Malaysia between 1998 to 2002 explores the impact of institutional holdings on managerial ownership and debt policy in an integrated framework by using a simultaneous equations estimation procedure (2SLS). The findings show that there is a significant impact of institutional ownership which serves effective control mechanism on managerial ownership and corporate debt policy as hypothesized. Findings of such evidence suggest that institutional holding thus have played an important role in managers' strategic management decision and reduce agency conflict. In addition, corporate debt policy too is governed by managerial ownership and exhibited a negative relation.