Corporate governance of executive remuneration with special reference to Bangladesh

This discussion paper focuses on corporate governance issues associated with executive compensation arrangements. An historical perspective is used to demonstrate the absence of a sound empirically-based understanding of good corporate governance practices in relation to share-based payment arrangements. The paper provides an overview of issues including the potential earnings dilution and volatility effects of the introduction of regulations affecting executive remuneration. Potential research questions have been framed addressing each of the major issues identified in this paper. It is concluded that corporate regulators should ensure they are familiar with and that they consider best practice models for corporate governance when developing new or revising existing business regulation. It is proposed that further research to remedy this deficiency would enable a more accurate assessment of the impact of management on accounting regulation and the better design and implementation of regulation.

Three essays on financial markets

This thesis examines stock price behaviour on the New York Stock Exchange.  The thesis develops modelsto show that firms on the stock exchange are different with respect to volatility and changes in calender dates.  Moreover, the thesis shows that firm returns are affected differently by oil prices.

Effects of variation in modulator temperature during cryogenic modulation in comprehensive two-dimensional gas chromatography

Many modulation systems in comprehensive 2D GC (GC×GC) are based on cryogenic methods. High trapping temperatures in these systems can result in ineffective trapping of the more volatile compounds, whilst temperatures that are too low can prevent efficient remobilisation of some compounds. To better understand the trapping and release of compounds over a wide range of volatilities, we have investigated a number of different constant temperature modulator settings, and have also examined a constant temperature differential between the cryo-trap and the chromatographic oven. These investigations have led us to modify the temperature regulation capabilities of the longitudinally modulated cryogenic system (LMCS). In contrast to the current system, where the user sets a constant temperature for the cooling chamber, the user now sets the temperature difference between the cryo-trap and the chromatographic oven. In this configuration, the cooling chamber temperature increases during the chromatographic run, tracking the oven temperature ramp. This produces more efficient, volatility-dependent modulation, and increases the range of volatile compounds that can be analysed under optimal trap-and-release conditions within a single analytical run. This system also reduces cryogenic fluid consumption.

An examination of Australian gold mining firms' exposure over the collapse of gold price in the late 1990s

Purpose – The purpose of this study is to examine the exposures of Australian gold mining firms in the highly volatile period from 1995 to 2000. This period has been characterized by significant changes in gold price due to bulk sale of gold by collective central banks. Specifically, the paper aims to investigate several firm-specific factors that are hypothesized to carry substantial influence on gold beta.

Design/methodology/approach – To estimate gold beta, we use the following multifactor model: R_g,_t = a+ß_gGPR_t + ß_xFXR_t + ß_mR_m,_t + _Et , where R_g,_t is the return on the gold stock Index at time t, GPR_t is the gold price return denominated in US dollar at time t, FXR_t is the foreign exchange return of Australian dollar in terms of US dollar at time t, R_m,t is the market return at time t, and _Et is the random error term at time t.

Findings – The paper finds that the values of gold beta are consistently greater than one, implying the sensitive nature of firms’ stock returns to gold price changes. This also suggests that investors holding gold mining stock would receive higher percentage increases in stock returns from a percentage increase in gold price returns, as opposed to investors holding gold bullion. Furthermore, these values have changed substantially over time with significant changes in gold price volatility. The most important and consistent relationship that we find is the impact of firms’ hedging behavior on their respective gold betas. This is consistent with Tufano’s study. It implies that firms, which hedge a greater proportion of their gold reserves, are less sensitive to movements in gold prices. The finding therefore supports the risk management theory that hedging increases shareholder’s wealth. However, cash operating costs, cash reserves and the level of gold production seem to influence very little on the firms’ exposure to gold price changes.

Originality/value – This study is of interest and important to the stock mining companies and investors because the extent of the effect of gold price movements on the stock returns of gold mining companies has significant impacts on returns for both firms and investors especially in their risk management and investment decisions, respectively.

Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.

Australian and US interest rate swap markets : comparison and linkages

We investigate and compare the determinants of US and Australian interest rate swap spreads and the linkages between these markets. The slope of the risk-free term structure is the most significant determinant and its importance is greater for longer terms to maturity. Interest rate levels and, in Australia, the default premium also have some impact. The influences of interest rate volatility, the liquidity premium and (in the USA) the default premium are small or negligible. We hypothesise, and our evidence confirms, that the US swap market significantly affects the Australian swap market but not vice-versa.

Firm heterogeneity and calendar anomalies

While the calendar anomalies and financial market relationship is one of the oldest relationships in financial economics, we treat this relationship differently by addressing two unknown issues: (a) Do calendar anomalies have a heterogeneous effect on firm returns and firm volatility depending on the sectoral location of firms? and (b) Do calendar anomalies affect firm returns and firm volatility differently depending on firm size? Unlike the assumption in this literature that firms are homogeneous, we show that they are in fact heterogeneous. Using 560 firms listed on the New York Stock Exchange (NYSE) over the period 5 January 2000 to 31 December 2008, we find fresh results, previously undocumented in this literature. We find evidence of calendar anomalies affecting returns and return volatility of firms differently depending on their sectoral locations and size.

Financial systems and mechanisms of growth in different conditions of country risk

This article uses panel data from 1976 to 2003 to investigate the ways in which banking and stock markets influence economic growth in situations of high and low country risk. The mean and Standard Deviation (SD) of country risk are adopted to classify 28 countries into Low Risk Low Volatility (LRLV) and High Risk High Volatility (HRHV) subgroups. Through the technique of error correction-based panel co-integration developed by Westerlund (2007), several results are obtained. First, LRLV countries can expand the capitalization of stock market to enhance long-term economic growth. Second, HRHV countries, on the other hand, use two distinct strategies to promote long-term economic growth. Initially they develop their equity markets, which promote economic growth directly. Strengthened equity markets, in turn, aid in the development of credit markets, which subsequently brings an economic boom. Finally, regardless of selected subgroups, the contribution of stock market capitalization to economic growth appears to be substantially larger than that of bank credit, highlighting the importance of stock markets.

Evaluating UK housing policies to tackle housing affordability

Purpose – The purpose of this paper is to present an analytical summary of UK housing policies. It aims to evaluate UK government's housing policies, before and after the publication of the Barker Review, to tackle affordability issues in the owner-occupied sector. It examines the extent to which housing policy contributes to or alleviates the problem of the affordability of owner-occupied housing.

Design/methodology/approach – This paper evaluates the impact of UK government housing policies since 2000 on housing affordability by analysing their impact on the dynamics of housing demand and supply.

Findings – The Barker Review, which applied simple economic ideas and techniques in analysing the owner-occupied UK housing market, argued that increases in new housing supply would help to improve housing affordability. The second Barker Review suggested that changes to the planning system were needed in order not only to increase new housing supply, but to make housing supply more sensitive to changing demands. The Barker Reviews brought about a major re-think in government policy towards housing, particularly relating to new build and the planning system. However, the heavy reliance on the private sector to provide additional housing has reduced the effectiveness of policy changes. In addition, the adoption by the government of “demand-side” housing policies has done little to negate the volatility of UK house prices or to raise the overall affordability of owner-occupied housing.

Originality/value – This paper reflects on government failures in UK housing policy in addressing the affordability of owner-occupied housing. The findings will be of interest to policy makers and housing researchers.

The direct costs of raising external equity capital for US REIT IPOs

Purpose – The purpose of this paper is to investigate the total direct costs of raising external equity capital for US real estate investment trust (REIT) initial public offerings (IPOs).

Design/methodology/approach – The study provides recent evidence on total direct costs for a comprehensive dataset of 125 US REIT IPOs from 1996 until June 2010. A multivariate OLS regression is performed to determine significant factors influencing the level of total direct costs and also underwriting fees and non-underwriting direct expenses.

Findings – The study finds economies of scale in total direct costs, underwriting fees and non-underwriting expenses. The equally (value) weighted average total direct costs are 8.33 percent (7.52 percent), consisting of 6.49 percent (6.30 percent) underwriting fees and 1.87 percent (1.22 percent) non-underwriting direct expenses. The study finds a declining trend of total direct costs for post 2000 IPOs which is attributed to the declining trend in both underwriting fees and non-underwriting direct expenses. Offer size is a critical determinant for both total direct costs and their individual components and inversely affects these costs. The total direct costs are found significantly higher for equity REITs than for mortgage REITs and are also significantly higher for offers listed in New York Stock Exchange (NYSE). Underwriting fees appear to be negatively influenced by the offer price, the number of representative underwriters involved in the issue, industry return volatility and the number of potential specific risk factors but positively influenced by prior quarter industry dividend yield and ownership limit identified in the prospectus. After controlling for time trend, the paper finds REIT IPOs incur higher non-underwriting direct expenses in response to higher industry return volatility prior to the offer.

Originality/value – This paper adds to the international REIT IPO literature by exploring a number of new influencing factors behind total direct costs, underwriting fees and non-underwriting direct expenses. The study includes data during the recent GFC period.

Factors affecting capital program performance audit findings

Complex capital programs require specialized management techniques, in order to address the volatility, cost overruns, significant delays in completion, and failures with which such programs are typically associated. The need is greater than ever for careful oversight, especially for programs that expend public monies.

Audit is commonly a statutory or governance requirement on such programs, but traditional performance audit techniques and standards may be insufficient for certain types of programs and industries, providing a mere illusion of oversight adequacy instead of the assurance that is needed. In order to most appropriately define the performance audit scope, phrase the solicitation for services, select the audit team, and provide support to the auditors during the engagement, public and private sector entity auditees need to understand the factors that impact performance audit results and effectiveness. The question becomes one of how performance audit can be improved, and stakeholders satisfied regarding program achievements, accountability for resource use, transparency in operations, and risk management.

The author considered program complexity, governance, project controls, the history and evolution of the audit function, stakeholder expectations, assurance, and obstacles to audit, and used this information in conjunction with data from a large sample of 775 audit reports from complex construction programs, to derive questions and conclusions about performance audit results and effectiveness, and comparisons to expenditure audit results. The ultimate goal was to define key components in the execution of performance audits, based on theconclusions of the analysis, in order to improve performance audit findings and thus their applicability and usefulness.

While this study focused on program performance audit, it was also related to the field of program management. Although the data population was concentrated in the area of construction programs, conclusions from this research may also be applied to other complex, multifaceted or phased activities such as projects and programs in other industries (manufacturing, information technology), and also pursuits such as major event planning, company launch, mergers, and large program implementations or rollouts.

The research results clearly demonstrated that different types of findings were generated by different audit scopes. The author observed that typical audit findings focused on routine procedural, accounting, and controls errors. On average, contract expenditure audits questioned only 2.65% of expenditures, and performance audits of large complex programs questioned only 0.03% of expenditures. The majority (72.56%) of the performance audits in the sample yielded no findings or questioned costs.

There were significant positive correlations between: the number of expenditures tested and the number of qualitative findings, inclusion of construction experts on the audit team and the percentage of expenditures questioned, inclusion of construction experts on the audit team and the number of qualitative findings, broader audit scope and the percentage of expenditures questioned, and broader audit scope and the number of qualitative findings. Of these, auditor expertise and audit scope were the driving factors.

There were significant negative correlations between the application of agreed-upon procedures and the percentage of expenditures questioned, and the application of agreed upon-procedures and the number of qualitative findings. It was determined that the significant negative correlation between the application of audit standards and the number of qualitative findings was due to other factors, such as the application of agreed-upon procedures and the lack of construction experts on the audit team.

Other findings, resulting from review of the data, were unrelated to the research questions yet of considerable importance to industry. An extremely high percentage (81%) of the “performance audits” instead applied a very limited set of agreed-upon-procedures (AUP) in the engagement, According to the American Institute of Certified Public Accountants (CPAs), AUP engagements could not be classified as audits. Thus, it was inappropriate for the accounting firms to apply AUP engagements in lieu of a performance audit, and it was especially egregious for them to state in their report that the engagements were conducted in accordance with audit standards, as AUP engagements and the specific audit standards were by their very nature mutually exclusive.

The politics of Timor-Leste : democratic consolidation after intervention

The Politics of Timor-Leste explores the critical issues facing the Asia-Pacific's youngest nation as it seeks to consolidate a democracy following years of international intervention. The authors study the challenges that have burdened the state since it broke from Indonesia amid the violence of 1999 and formally achieved full independence in 2002. They assess the notable accomplishments of Timor-Leste’s leaders and citizens, and consider the country’s future prospects as international organizations prepare to depart. A close study of Timor-Leste sheds light on ambitious state-building projects that have been initiated, with varying success, across the globe.

Contributors to this volume map the nation’s recent political evolution through studies of its constitutional debates, political parties, and foreign policy responses to powerful neighbors. They address the social and economic conditions that complicate Timor-Leste’s political development, such as gender discrimination, poverty, corruption, and security-sector volatility. The contemporary history of Timor-Leste reflects the experiences of many postcolonial and developing countries that have sought to establish a viable state following conflict and a declaration of independence. This small nation has been the subject of five consecutive UN missions with varying mandates. The Politics of Timor-Leste ought to serve as a key source for comparative postcolonial studies and a guide to future trends in international state-building and assistance.

The implied convenience yield of precious metals: safe haven versus industrial usage

During a financial crisis, investors find it convenient to hold gold (Gd) as a safe haven. But during good economic times, manufacturing firms find it convenient to stockpile platinum (Pl), palladium (Pd) and especially silver (Si), for industrial usages. We have three related objectives. First, we examine the nature of cross-market interactions among the convenience yields (cy_it) of {Gd, Pl, Pd, Si}, which are implied from cost-of-carry relations. Second, we test if the more influential cy_it of certain precious metals are also affecting the return, volatility and/or volume dynamics of other precious metals. Third, we analyze if the cy_it of gold is enhanced (diluted) during (after) the Asian and Global financial crises. We find, consistent with our propositions, that during crisis period, gold’s cy_it provides incremental information to the volatility series of {Gd, Pl, Pd, Si}. But during good economic times, it is silver’s cy_it that has the most influence on the return series across {Gd, Pl, Pd, Si}. This is not surprising given that Si has the largest proportion of industrial usage among the four metals.

A-REIT rights issues

Purpose – This is the first REIT paper to seek to empirically examine potential influencing factors on the discounts and underwriting fees of Australian REIT rights issues.

Design/methodology/approach – Using a methodology similar to Owen and Suchard, and Armitage, a sample of 62 A-REIT rights issues during 2001-2009 is analyzed. A variety of potential factors influencing discounts and underwriting fees are explored.

Findings – Over A$20 billion was raised by A-REIT rights issues during 2001-2009 (this around three times that raised through A-REIT initial public offerings during the same period). The mean offer price was discounted around 9.5 percent from the current market price and underwriting fees averaged 2.9 percent of gross proceeds raised – both substantially less than for industrial rights issues. The standard deviation of daily returns for the past year appears to influence the percentage discount offered to subscribers. This volatility was particularly noticeable in 2008 and 2009, during the global financial crisis, where new issues were discounted substantially so as to raise equity to repay debt. This historical risk variable appears paramount in determining the discounts to subscribers and fees to underwriters.

Practical implications – A-REITs seeking to minimize the discounts offered to subscribers and to minimize their underwriting costs with rights issue equity capital raisings must first minimize their share price volatility.

Originality/value – This paper adds to the international costs of capital raising literature of REITs by examining such costs with A-REIT rights issues and is the first paper to examine factors influencing these costs.