Determinants of Capital Structure of Swedish limited companies : Testing Trade-off Theory Against Pecking Order Theory

Research question- This thesis investigates the determinants of capital structure of the Swedish companies. In order to do so, the two dominant theories of the corporate structure are studied and their assumptions are tested. Thus, the study researches which one of the two theories is more appealing for the Swedish market. Methodology-The study follows a purely quantitative study, by conducting an econometric analysis. The data are collected from a secondary source and more particularly the "Retriever" database, which contains financial data of the Swedish companies. Findings- The findings indicate that the determinants of the corporate structure for the Swedish market do not differ from other studies which have been conducted in other countries. However, there is a difference when it comes to tax and non-tax shields. The results suggest that in most cases the Pecking Order Theory appears to be more representative for the Swedish market, since most of the coefficient appear to be in favour of it. Moreover, the significance of the effect of the industry for the financial leverage is confirmed.

Strategic Information Disclosure through Integrated Reporting : A study on OMXS30-listed companies’ compliance with the <IR> Framework content element Strategy and Resource Allocation

Background and problem – As a result of financial crises and the realization of a broader stakeholder network, recent decades have seen an increase in stakeholder demand for non- financial information in corporate reporting. This has led to a situation of information overload where separate financial and sustainability reports have developed in length and complexity interdependent of each other. Integrated reporting has been presented as a solution to this problematic situation. The question is whether the corporate world believe this to be the solution and if the development of corporate reporting is heading in this direction. Purpose - This thesis aims to examine and assess to what extent companies listed on the OMX Stockholm 30 (OMXS30), as per 2016-02-28, comply with the Strategic content element of the <IR> Framework and how this disclosure has developed since the framework’s pilot project and official release by using a self-constructed disclosure index based on its specific items. Methodology – The purpose was fulfilled through an analysis of 104 annual reports comprising 26 companies during the period of 2011-2014. The annual reports were assessed using a self-constructed disclosure index based on the <IR> Framework content element Strategy and Resource Allocation, where one point was given for each disclosed item. Analysis and conclusions – The study found that the OMXS30-listed companies to a large extent complies with the strategic content element of the <IR> Framework and that this compliance has seen a steady growth throughout the researched time span. There is still room for improvement however with a total average framework compliance of 84% for 2014. Although many items are being reported on, there are indications that companies generally miss out on the core values of Integrated reporting. 

Corporate Social Responsibility och lönsamhet : Finns det ett samband mellan företags rapporterade CSR-arbete och dess lönsamhet?

Bakgrund: Vilken roll har företag i vårt samhälle? Vilken funktion ska de fylla? Är företagens funktion att vara vinstmaximerande och enbart se till sitt eget bästa, eller har de ett större ansvar och skyldigheter mot samhället? Dessa frågor har diskuterats under lång tid och bilden av företag och företagande förändras kontinuerligt i takt med att samhället förändras. Tankarna om att företag har ett socialt ansvar, vid sidan av det ekonomiska, har spridit sig över världen och frågor som har dykt upp är om det finns någon motsättning mellan socialt ansvar och företagens vinstintresse. Eller kan det vara så att socialt ansvarstagande kan leda till ökad lönsamhet? Syfte: Att genom en empirisk undersökning ge en förklaring om svenska noterade bolags rapporterade arbete med CSR har en positiv inverkan på dess lönsamhet. Metod: För att uppnå syftet valdes en deduktiv kvantitativ metod för att kunna göra en statistisk generalisering. Det rapporterade CSR-arbetet operationaliseras med hjälp av Folksams rapport "Index för ansvarsfullt företagande" och lönsamhet mäts via avkastning på totalt kapital (ROA) samt vinstmarginal. Analysen genomförs med hjälp av multipla regressionsanalyser. Slutsats: Studiens resultat visar att företags rapporterade CSR-arbete har en positiv inverkan på svenska noterade företags lönsamhet, både mätt i avkastning på totalt kapital (ROA) och vinstmarginal.

Effects of IFRS adoption on the financial statements of Nigerian listed entities: the case of oil and gas companies

On 28 July 2010, the Nigerian Federal Executive Council approved January 1, 2012 as the effective date for the convergence of Nigerian Statement of Accounting Standards (SAS) or Nigerian GAAP (NG-GAAP) with International Financial Reporting Standards (IFRS). By this pronouncement, all publicly listed companies and significant public interest entities in Nigeria were statutorily required to issue IFRS based financial statements for the year ended December, 2012. This study investigates the impact of the adoption of IFRS on the financial statements of Nigerian listed Oil and Gas entities using six years of data which covers three years before and three years after IFRS adoption in Nigeria and other African countries. First, the study evaluates the impact of IFRS adoption on the Exploration and Evaluation (E&E) expenditures of listed Oil and Gas companies. Second, it examines the impact of IFRS adoption on the provision for decommissioning of Oil and Gas installations and environmental rehabilitation expenditures. Third, the study analyses the impact of the adoption of IFRS on the average daily Crude Oil production cost per Barrel. Fourth, it examines the extent to which the adoption and implementation of IFRS affects the Key Performance Indicators (KPIs) of listed Oil and Gas companies. The study further explores the impact of IFRS adoption on the contractual relationships between Nigerian Government and Oil and Gas companies in terms of Joint Ventures (JVs) and Production Sharing Contracts (PSCs) as it relates to taxes, royalties, bonuses and Profit Oil Split. A Paired Samples t-test, Wilcoxon Signed Rank test and Gray’s (Gray, 1980) Index of Conservatism analyses were conducted simultaneously where the accounting numbers, financial ratios and industry specific performance measures of GAAP and IFRS were computed and analysed and the significance of the differences of the mean, median and Conservatism Index values were compared before and after IFRS adoption. Questionnaires were then administered to the key stakeholders in the adoption and implementation of IFRS and the responses collated and analysed. The results of the analyses reveal that most of the accounting numbers, financial ratios and industry specific performance measures examined changed significantly as a result of the transition from GAAP to IFRS. The E&E expenditures and the mean cost of Crude Oil production per barrel of Oil and Gas companies increased significantly. The GAAP values of inventories, GPM, ROA, Equity and TA were also significantly different from the IFRS values. However, the differences in the provision for decommissioning expenditures were not statistically significant. Gray’s (Gray, 1980) Conservatism Index shows that Oil and Gas companies were more conservative under GAAP when compared to the IFRS regime. The Questionnaire analyses reveal that IFRS based financial statements are of higher quality, easier to prepare and present to management and easier to compare among competitors across the Oil and Gas sector but slightly more difficult to audit compared to GAAP based financial statements. To my knowledge, this is the first empirical research to investigate the impact of IFRS adoption on the financial statements of listed Oil and Gas companies. The study will therefore make an enormous contribution to academic literature and body of knowledge and void the existing knowledge gap regarding the impact and implications of IFRS adoption on the financial statements of Oil and Gas companies.

International Branding Strategies : In Swedish and Russian Fashion Companies

There are a lot of different business strategies for any company. However, in the fashion industry, the best way to become successful is to develop the brand using special branding strategies. Hence, a brand is the main weapon for fashion companies, which helps to launch international market and to create loyal customers around the world. Nowadays, due to the difficult current political situations and the collapse of oil and the dollar a lot of companies in different industries have to change their business strategies. It is especially true for fashion companies, because they depend on consumers ' income and their purchasing power. In the case of the fashion industry, branding strategy development can be more effective, than just business strategy. Hence, this thesis discusses the following problem: What branding strategy should Russian and Swedish fashion companies choose in order to build a strong brand and enter the international market.  The purpose of this thesis is to analyze various branding strategies of Russian and Swedish fashion companies during the process of entering foreign markets. At the end of this thesis, practical contribution in their process of international branding strategy creation will be discussed. In order to answer research questions more broadly and accurately, the mixed research method, using quantitive and qualitative study through interviews and survey was chosen. Semi-structured interviews were made with the CEO and brand managers of Russian and Swedish fashion companies. Moreover, the survey was made with two different questionnaires: for Russian and for Swedish customers. In the case of qualitative research, the author found that fashion companies from Russia and Sweden have got not just some features and differences, but also common aspects. The primary data from interviews allowed the author to understand the specifics of brand management in the fashion industry. It was found, that there are some useful aspects in Swedish strategies, which can be used by Russian companies to develop their brands on the international market. In the case of quantitative research, preferences of consumers from Russia and Sweden were analyzed and also some features were identified. Survey results provided the author with a common understanding about purchase habits, attitudes and perceptions to fashion brands. According to these, some hypothesizes, which are formulated in the first part of the thesis, have been proven or disproven. It was found, that preferences of Russian and Swedish people are pretty the same, however Russian customers do not like to risk with new brands and prefer well-known and trusted brands while Swedish customers are open for any brand, which can satisfy their tastes.

Do board contacts matter? : an analysis of the relationship between boards of directors’ ties and the performance of Australia’s largest companies.

Boards of directors are thought to provide access to a wealth of knowledge and resources for the companies they serve, and are considered important to corporate governance. Under the Resource Based View (RBV) of the firm (Wernerfelt, 1984) boards are viewed as a strategic resource available to firms. As a consequence there has been a significant research effort aimed at establishing a link between board attributes and company performance. In this thesis I explore and extend the study of interlocking directorships (Mizruchi, 1996; Scott 1991a) by examining the links between directors’ opportunity networks and firm performance. Specifically, I use resource dependence theory (Pfeffer & Salancik, 1978) and social capital theory (Burt, 1980b; Coleman, 1988) as the basis for a new measure of a board’s opportunity network. I contend that both directors’ formal company ties and their social ties determine a director’s opportunity network through which they are able to access and mobilise resources for their firms. This approach is based on recent studies that suggest the measurement of interlocks at the director level, rather than at the firm level, may be a more reliable indicator of this phenomenon. This research uses publicly available data drawn from Australia’s top-105 listed companies and their directors in 1999. I employ Social Network Analysis (SNA) (Scott, 1991b) using the UCINET software to analyse the individual director’s formal and social networks. SNA is used to measure a the number of ties a director has to other directors in the top-105 company director network at both one and two degrees of separation, that is, direct ties and indirect (or ‘friend of a friend’) ties. These individual measures of director connectedness are aggregated to produce a board-level network metric for comparison with measures of a firm’s performance using multiple regression analysis. Performance is measured with accounting-based and market-based measures. Findings indicate that better-connected boards are associated with higher market-based company performance (measured by Tobin’s q). However, weaker and mostly unreliable associations were found for accounting-based performance measure ROA. Furthermore, formal (or corporate) network ties are a stronger predictor of market performance than total network ties (comprising social and corporate ties). Similarly, strong ties (connectedness at degree-1) are better predictors of performance than weak ties (connectedness at degree-2). My research makes four contributions to the literature on director interlocks. First, it extends a new way of measuring a board’s opportunity network based on the director rather than the company as the unit of interlock. Second, it establishes evidence of a relationship between market-based measures of firm performance and the connectedness of that firm’s board. Third, it establishes that director’s formal corporate ties matter more to market-based firm performance than their social ties. Fourth, it establishes that director’s strong direct ties are more important to market-based performance than weak ties. The thesis concludes with implications for research and practice, including a more speculative interpretation of these results. In particular, I raise the possibility of reverse causality – that is networked directors seek to join high-performing companies. Thus, the relationship may be a result of symbolic action by companies seeking to increase the legitimacy of their firms rather than a reflection of the social capital available to the companies. This is an important consideration worthy of future investigation.

Corporate governance mechanisms and earnings management in transitional countries – evidence from Chinese listed firms

The objective of this thesis is to investigate whether the corporate governance practices adopted by Chinese listed firms are associated with the quality of earnings information. Based on a review of agency and institutional theory, this study develops hypotheses that predict the monitoring effectiveness of the board and the audit committee. Using a combination of univariate and multivariate analyses, the association between corporate governance mechanisms and earnings management are tested from 2004 to 2008. Through analysing the empirical results, a number of findings are summarised as below. First, board independence is weakened by the introduction of government officials as independent directors on the boards. Government officials acting as independent directors, claim that they meet the definition of independent director set by the regulation. However, they have some connection with the State, which is the controlling shareholder in listed SOEs affiliated companies. Consequently, the effect of the independent director’s expertise in constraining earnings management is mitigated as demonstrated by an insignificant association between board expertise and earnings management. An alternative explanation for the inefficiency of board independence may point to the pre-selection of independent directors by the powerful CEO. It is argued that a CEO can manipulate the board composition and choose the "desirable" independent directors to monitor themselves. Second, a number of internal mechanisms, such as board size, board activities, and the separation of the roles of the CEO and chair are found to be significantly associated with discretionary accruals. This result suggests that there are advantages in having a large and active board in the Chinese setting. This can offset the disadvantages associated with large boards, such as increased bureaucracy, and hence, increase the constraining effects of a large and resourceful board. Third, factor analysis identifies two factors: CEO power and board power. CEO power is the factor which consists of CEO duality and turnover, and board power is composed of board size and board activity. The results of CEO power show that if a Chinese listed company has CEO duality and turnover at the same time, it is more likely to have a high level of earnings management. The significant and negative relationship between board power and accruals indicate that large boards with frequent meetings can be associated with low level of earnings management. Overall, the factor analysis suggests that certain governance mechanisms complement each other to become more efficient monitors of opportunistic earnings management. A combination of board characteristics can increase the negative association with earnings management. Fourth, the insignificant results between audit committees and earnings management in Chinese listed firms suggests that the Chinese regulator should strengthen the audit committee functions. This thesis calls for listed firms to disclose more information on audit committee composition and activities, which can facilitate future research on the Chinese audit committee’s monitoring role. Fifth, the interactive results between State ownership and board characteristics show that dominant State ownership has a moderating effect on board monitoring power as the State totally controls 42% of the issued shares. The high percentage of State ownership makes it difficult for the non-controlling institutional shareholders to challenge the State’s dominant status. As a result, the association between non-controlling institutional ownership and earnings management is insignificant in most situations. Lastly, firms audited by the international Big4 have lower abnormal accruals than firms audited by domestic Chinese audit firms. In addition, the inverse U-shape relationship between audit tenure and earnings quality demonstrates the changing effects of audit quality after a certain period of appointment. Furthermore, this thesis finds that listing in Hong Kong Stock Exchanges can be an alternative governance mechanism to discipline Chinese firms to follow strict Hong Kong listing requirements. Management of Hong Kong listed companies are exposed to the scrutiny of international investors and Hong Kong regulators. This in turn reduces their chances of conducting self-interested earnings manipulation. This study is designed to fill the gap in governance literature in China that is related to earnings management. Previous research on corporate governance mechanisms and earnings management in China is not conclusive. The current research builds on previous literature and provides some meaningful implications for practitioners, regulators, academic, and international investors who have investment interests in a transitional country. The findings of this study contribute to corporate governance and earnings management literature in the context of the transitional economy of China. The use of alternative measures for earnings management yields similar results compared with the accruals models and produces additional findings.

Are investors guided by the news disclosed by companies or by journalists?

Most previous studies demonstrating the influential role of the textual information released by the media on stock market performance have concentrated on earnings-related disclosures. By contrast, this paper focuses on disposal announcements, so that the impacts of listed companies’ announcements and journalists’ stories can be compared concerning the same events. Consistent with previous findings, negative words, rather than those expressing other types of sentiment, statistically significantly affect adjusted returns and detrended trading volumes. However, extending previous studies, the results of this paper indicate that shareholders’ decisions are mainly guided by the negative sentiment in listed companies’ announcements rather than that in journalists’ stories. Furthermore, this effect is restricted to the announcement day. The average market reaction–measured by adjusted returns–is inversely related only when the announcements are ignored by the media, but the dispersion of market reaction–measured by detrended trading volume–is positively affected only when announcements are followed up by journalists.

Perspektiv på revision : tankemönster, förväntningsgap och dilemman

Auditing is an important activity in today’s society and is characterised by several dilemmas. The assumption underlying this thesis is that auditing is influenced in prac-tice by the thought patterns of auditors. These patterns are shaped in an environment that is both regulated and self-regulated. The purpose of the thesis is to describe, analyse and compare the thought patterns of Swedish auditors and important stake-holders with regard to the way in which auditors audit information provided by listed companies and how they make statements about this information. The purpose is also to make some suggestions about how the auditing activity can be modified in order to reduce conflicting interests. The methodological approach combines the use of the repertory grid technique and open-ended interview questions. Interviews were carried out with 82 auditors and 73 stakeholders. To validate the findings, four focus groups, consisting of auditors, investors and creditors, were consulted. The findings indicate that auditors devote a relatively large amount of time and considerable effort to objects that can be verified satisfactorily, but not to objects that they perceive as being of primary importance to investors and creditors. A similar gap is found in the thought patterns of investors and creditors. Moreover, several expec-tation gaps are found, in particular regarding auditors’ statements. On the one hand, the auditors studied were reluctant to make statements about any other information than information obtained according to current practice; on the other hand, the inves-tors and creditors expressed a need for additional information about the outcome of the audit and the choice of auditing objects. The concluding suggestions concern measures that can reduce the discrepancies identi-fied, including (i) the introduction of a mandatory primary audit and a market-oriented secondary audit, (ii) extended information about the outcome of the audit and the choice of auditing objects that will benefit the stakeholders, (iii) a somewhat less expo-sed position of the auditors, and (iv) the importance of a changed balance of power in the auditing arena and the need for an integrated and dynamic approach to auditing. Keywords: auditing, accounting information, auditors, stakeholders, agency theory, thought patterns, expectation gap, repertory grid.

Separation of Control and Cash-Flow Rights of State Owned Listed Enterprises: Channels of Expropriation after the Discriminated Share Reform in China

Literature on agency problems arising between controlling and minority owners claim that separation of cash flow and control rights allows controllers to expropriate listed firms, and further that separation emerges when dual class shares or pyramiding corporate structures exist. Dual class share and pyramiding coexisted in listed companies of China until discriminated share reform was implemented in 2005. This paper presents a model of controller to expropriate behavior as well as empirical tests of expropriation via particular accounting items and pyramiding generated expropriation. Results show that expropriation is apparent for state controlled listed companies. While reforms have weakened the power to expropriate, separation remains and still generates expropriation. Size of expropriation is estimated to be 7 to 8 per cent of total asset at mean. If the "one share, one vote" principle were to be realized, asset inflation could be reduced by 13 percent.

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.

Företags potentiella manipulation av tillväxttakt i goodwillnedskrivningstestet : En kvantitativ studie av svenska och finska börsnoterade företag

Bakgrund och problem: I och med den nya standarden IAS 36 ska företagen göra uppskattningar angående den långsiktiga tillväxttakten i goodwillnedskrivningstestet. Detta innebär en möjlighet att manipulera tillväxttakten för att på så vis undvika eller framkalla nedskrivning av goodwill. Problemformulering: Hur påverkar utvalda variabler företags potentiella manipulation av angiven tillväxttakt? Syfte: Syftet med studien är att bidra med förklaringar till vad som påverkar att företag redovisar för höga respektive för låga tillväxttakter i goodwillnedskrivningstestet. Metod: Denna studie bygger på en kvantitativ metod där urvalet består av samtliga svenska och finska börsnoterade företag med redovisad goodwill. Utifrån existerade kunskap formuleras fyra hypoteser som testas mot empirin. Resultat och slutsats: Resultatet av denna studie visar inga signifikanta samband mellan den beroende variabeln manipulation och de oberoende variablerna storlek, skuldsättningsgrad, bransch och redovisningstillsyn. Den deskriptiva statistiken visar att i stort sett hälften av företagen manipulerar tillväxttakten.

Den goda viljan och framtida lönsamhet : En studie om nedskrivning av goodwill är en ledande indikator på framtida minskad lönsamhet i svenska och finska börsnoterade bolag

Bakgrund: Goodwill är en omdebatterad immateriell tillgångspost. En nedskrivning ska enligt redovisningsstandarden IAS 36 baseras på bolagens framtida ekonomiska utveckling. Därmed kan en nedskrivning vara en indikation på hur bolagets ekonomiska framtid kommer att gestalta sig. Tidigare forskning visar att bolagsledningens subjektiva bedömningar kan leda till att nedskrivningens relevans kan ifrågasättas. Syfte: Enligt IFRS 3 och IAS 36 ska goodwill värderas till det framtida uppskattade värde som tillgången ska generera. Grundtanken med standarderna är att öka tillförlitligheten och relevansen för att bättre återspegla bolagens ekonomi i de finansiella rapporterna. Utifrån grundtanken bör en nedskrivning av goodwill vara en ledande indikator på framtida minskad lönsamhet. Vi avser därmed att undersöka om det finns ett samband mellan nedskrivning av goodwill och minskad framtida lönsamhet i svenska och finska börsnoterade bolag samt om det finns en skillnad mellan länderna när det gäller sambandet. Metod: Uppsatsen är baserad på en kvantitativ metod med en deduktiv ansats där sekundärdata hämtats från databas samt årsredovisningar. Informationen har samlats in för att därefter testas med regressionsanalyser. Slutsats: Studien kan inte styrka att standarden ger en bättre återspegling av bolagens ekonomi i de finansiella rapporterna. Resultatet visar att hanteringen av goodwill kan ske utifrån ett opportunistiskt beteende då nedskrivningen kan vara baserad på en redan realiserad försämring av goodwill istället för att vara baserad på framtida bedömningar. Resultatet antyder att tillsynen inte är harmoniserad inom EU, då det finns en signifikant skillnad mellan Sverige och Finland två år efter nedskrivningen. Studiens resultat kan användas till att ifrågasätta gällande standardens utformning.

Determinants of Terminal Value in the Evaluation of Companies: A Panel Data Approach to the Context of European Companies.

The uncertainty of the future of a firm has to be modelled and incorporated into the evaluation of companies outside their explicit period of analysis, i.e., in the continuing or terminal value considered within valuation models. However, there is a multiplicity of factors that influence the continuing value of businesses which are not currently being considered within valuation models. In fact, ignoring these factors may cause significant errors of judgment, which can lead models to values of goodwill or badwill, far from the substantial value of the inherent assets. Consequently, these results provided will be markedly different from market values. So, why not consider alternative models incorporating life expectancy of companies, as well as the influence of other attributes of the company in order to get a smoother adjustment between market price and valuation methods? This study aims to provide a contribution towards this area, having as its main objective the analysis of potential determinants of firm value in the long term. Using a sample of 714 listed companies, belonging to 15 European countries, and a panel data for the period between 1992 and 2011, our results show that continuing value cannot be regarded as the current value of a constant or growth perpetuity of a particular attribute of the company, but instead be according to a set of attributes such as free cash flow, net income, the average life expectancy of the company, investment in R&D, capabilities and quality of management, liquidity and financing structure.

Disclosing disclosure : new challenges for financial communicators

Stockmarket regulators in Australia, Canada and the United States have all issued recent challenges to listed companies on their disclosure practices, questioning in many cases what has been long standing practice. Financial public relations counsellors are constantly called up to advise on the communication consequences of difference disclosure strategies. This paper will explore the challenges, faced by a group of financial communicators within seven Australia listed companies, in setting and enacting disclosure polices for the organisations. It will identify hey issues involved in communicating within a regulated environment, as well as address the implications of new technology for future practice.