An analysis of the nature and effectiveness of corporate governance in smaller listed Australian companies

The objective of this thesis is to investigate the corporate governance attributes of smaller listed Australian firms. This study is motivated by evidence that these firms are associated with more regulatory concerns, the introduction of ASX Corporate Governance Recommendations in 2004, and a paucity of research to guide regulators and stakeholders of smaller firms. While there is an extensive body of literature examining the effectiveness of corporate governance, the literature principally focuses on larger companies, resulting in a deficiency in the understanding of the nature and effectiveness of corporate governance in smaller firms. Based on a review of agency theory literature, a theoretical model is developed that posits that agency costs are mitigated by internal governance mechanisms and transparency. The model includes external governance factors but in many smaller firms these factors are potentially absent, increasing the reliance on the internal governance mechanisms of the firm. Based on the model, the observed greater regulatory intervention in smaller companies may be due to sub-optimal internal governance practices. Accordingly, this study addresses four broad research questions (RQs). First, what is the extent and nature of the ASX Recommendations that have been adopted by smaller firms (RQ1)? Second, what firm characteristics explain differences in the recommendations adopted by smaller listed firms (RQ2), and third, what firm characteristics explain changes in the governance of smaller firms over time (RQ3)? Fourth, how effective are the corporate governance attributes of smaller firms (RQ4)? Six hypotheses are developed to address the RQs. The first two hypotheses explore the extent and nature of corporate governance, while the remaining hypotheses evaluate its effectiveness. A time-series, cross-sectional approach is used to evaluate the effectiveness of governance. Three models, based on individual governance attributes, an index of six items derived from the literature, and an index based on the full list of ASX Recommendations, are developed and tested using a sample of 298 smaller firms with annual observations over a five-year period (2002-2006) before and after the introduction of the ASX Recommendations in 2004. With respect to (RQ1) the results reveal that the overall adoption of the recommendations increased from 66 per cent in 2004 to 74 per cent in 2006. Interestingly, the adoption rate for recommendations regarding the structure of the board and formation of committees is significantly lower than the rates for other categories of recommendations. With respect to (RQ2) the results reveal that variations in rates of adoption are explained by key firm differences including, firm size, profitability, board size, audit quality, and ownership dispersion, while the results for (RQ3) were inconclusive. With respect to (RQ4), the results provide support for the association between better governance and superior accounting-based performance. In particular, the results highlight the importance of the independence of both the board and audit committee chairs, and of greater accounting-based expertise on the audit committee. In contrast, while there is little evidence that a majority independent board is associated with superior outcomes, there is evidence linking board independence with adverse audit opinion outcomes. These results suggest that board and chair independence are substitutes; in the presence of an independent chair a majority independent board may be an unnecessary and costly investment for smaller firms. The findings make several important contributions. First, the findings contribute to the literature by providing evidence on the extent, nature and effectiveness of governance in smaller firms. The findings also contribute to the policy debate regarding future development of Australia’s corporate governance code. The findings regarding board and chair independence, and audit committee characteristics, suggest that policy-makers could consider providing additional guidance for smaller companies. In general, the findings offer support for the “if not, why not?” approach of the ASX, rather than a prescriptive rules-based approach.

Functional heterogeneity as a two-dimensional concept : empirical evidence for new venture teams

Previous research on entrepreneurial teams has failed to settle the controversy over whether team heterogeneity helps or hinders new venture performance. Reconciling this inconsistency, this paper suggests a new conceptual approach to disentangle differential effects of team heterogeneity by modeling two separate heterogeneity dimensions, namely knowledge scope and knowledge disparity. Analyzing unique data on functional experiences of the members of 337 start-up teams, we find support for our contention of team heterogeneity as a two-dimensional concept. Results suggest that knowledge disparity negatively relates to both start-ups’ entrepreneurial and innovative performance. In contrast, we find knowledge scope to positively affect entrepreneurial performance, while it shows an inverse U-shaped relationship to innovative start-up performance.

The impact of the Malaysian code on corporate governance: compliance, institutional investors and stock performance

In 2001, the Malaysian Code on Corporate Governance (MCCG) became an integral part of the Bursa Malaysia Listing Rules, which requires all listed firms to disclose the extent of compliance with the MCCG. Our panel analysis of 440 firms from 1999 to 2002 finds that corporate governance reform in Malaysia has been successful, with a significant improvement in governance practices. The relationship between ownership by the Employees Provident Fund (EPF) and corporate governance has strengthened during the period subsequent to the reform, in line with the lead role taken by the EPF in establishing the Minority Shareholders Watchdog Group. The implementation of MCCG has had a substantial effect on shareholders' wealth, increasing stock prices by an average of about 4.8%. Although there is no evidence that politically connected firms perform better, political connections do have a significantly negative effect on corporate governance, which is mitigated by institutional ownership.

Corporate governance, accounting and finance: a review

We review accounting and finance research on corporate governance (CG). In the course of our review, we focus on a particularly vexing issue, namely endogeneity in the relationships between CG and other matters of concern to accounting and finance scholars, and suggest ways to deal with it. Given the advent of large commercial CG databases, we also stress the importance of how CG is measured and in particular, the construction of CG indices, which should be sensitive to local institutional arrangements, and the need to capture both internal and external aspects of governance. The ‘stickiness’ of CG characteristics provides an additional challenge to CG scholars. Better theory is required, for example, to explain whether various CG practices substitute for each other or are complements. While a multidisciplinary approach to developing better theory is never without its difficulties, it could enrich the current body of knowledge in CG. Despite the vastness of the existing CG literature, these issues do suggest a number of avenues for future research.

Unpacking the entrepreneurial process : A step-by-step guide to a successful venture in the entertainment industry

Unpacking the Entrepreneurial Process: A Step-by-Step Guide to a Successful Venture in the Entertainment Industry introduces a step-by-step guide to either students, entrepreneurs and intrapreneurs to fully understand the necessary steps to both unleash their entrepreneurial capabilities and to foster the development of new ones.

Understanding the diversity of non-specialised units within Australian property degrees

Building on the recommendations of the Bradley Review (2008), the Australian Federal government intends to promote a higher level of penetration of tertiary qualification across the broader Australian community which is anticipated to result in increased levels of standardisation across university degrees. In the field of property, tertiary academic programs are very closely aligned to the needs of a range of built environment professions and there are well developed synergies between the relevant professional bodies and the educational institutions. The strong nexus between the academic and the professional content is characterised by ongoing industry accreditation which nominates a range of outcomes which the academic programs must maintain across a range of specified metrics. Commonly, the accrediting bodies focus on standard of minimum requirements especially in the area of specialised subject areas where they require property graduates to demonstrate appropriate learning and attitudes. In addition to nominated content fields, in every undergraduate degree program there are also many other subjects which provide a richer experience for the students beyond the merely professional. This study focuses on the nonspecialised knowledge field which varies across the universities offering property degree courses as every university has the freedom to pursue its own policy for these non-specialised units. With universities being sensitive to their role of in the appropriate socialisation of new entrants, first year units have been used as a vehicle to support students’ transition into university education and the final year units seek to support students’ integration into the professional world. Consequentially, many property programs have to squeeze their property-specific units to accommodate more generic units for both first year and final year units and the resulting diversity is a feature of the current range of property degrees across Australia which this research will investigate. The matrix of knowledge fields nominated by the Australian Property Institute for accreditation of degrees accepted for Certified Practising Valuer (CPV) educational requirement and the complementary requirements of the other major accrediting body (RICS) are used to classify and compare similarities and differences across property degrees in the light of the streamlining anticipated from the Bradley Review.

Screening, isolation, and decolonisation strategies in the control of meticillin resistant Staphylococcus aureus in intensive care units : cost effectiveness evaluation

Objective: To assess the cost-effectiveness of screening, isolation and decolonisation strategies in the control of methicillin-resistant Staphylococcus aureus (MRSA) in intensive care units (ICUs). Design: Economic evaluation. Setting: England and Wales. Population: ICU patients. Main outcome measures: Infections, deaths, costs, quality adjusted life years (QALYs), incremental cost-effectiveness ratios for alternative strategies, net monetary benefits (NMBs). Results: All strategies using isolation but not decolonisation improved health outcomes but increased costs. When MRSA prevalence on admission to the ICU was 5% and the willingness to pay per QALY gained was between £20,000 and £30,000, the best such strategy was to isolate only those patients at high risk of carrying MRSA (either pre-emptively or following identification by admission and weekly MRSA screening using chromogenic agar). Universal admission and weekly screening using polymerase chain reaction (PCR)-based MRSA detection coupled with isolation was unlikely to be cost-effective unless prevalence was high (10% colonised with MRSA on admission to the ICU). All decolonisation strategies improved health outcomes and reduced costs. While universal decolonisation (regardless of MRSA status) was the most cost-effective in the short-term, strategies using screening to target MRSA carriers may be preferred due to reduced risk of selecting for resistance. Amongst such targeted strategies, universal admission and weekly PCR screening coupled with decolonisation with nasal mupirocin was the most cost-effective. This finding was robust to ICU size, MRSA admission prevalence, the proportion of patients classified as high-risk, and the precise value of willingness to pay for health benefits. Conclusions: MRSA control strategies that use decolonisation are likely to be cost-saving in an ICU setting provided resistance is lacking, and combining universal PCR-based screening with decolonisation is likely to represent good value for money if untargeted decolonisation is considered unacceptable. In ICUs where decolonisation is not implemented there is insufficient evidence to support universal MRSA screening outside high prevalence settings.

Development of a performance model for international construction joint venture : a system dynamics approach

The uncertain and dynamic nature of International Construction Joint Venture (ICJV) performance is evolved with many critical factors which lead to make partner relationships more complex in respect of making decisions to maintain a cohesive environment. Addressing to the fact, a generic system dynamics performance model for ICJV is developed by integrating a number variables as to get an overall impact on performance of ICJV and to make effective decisions based on that. In order to formulate and validate the model both structurally and behaviourally, both qualitative and quantitative data are gathered by conducting intensive interviews from two ICJVs in Thailand. After conducting intensive simulations of model, three major problems are identified related to negative value gap, low productivity in construction and high rate of ineffective information sharing of both ICJVs. Several policies are suggested and integrated application of these policies provides a maximum improvement to performance of the ICJV.

A longitudinal study of corporate earnings guidance in Australia’s continuous disclosure environment

Since the introduction of a statutory‐backed continuous disclosure regime (CDR) in 1994, regulatory reforms have significantly increased litigation risk in Australia for failure to disclose material information or for false and misleading disclosure. However, there is almost no empirical research on the impact of the reforms on corporate disclosure behaviour. Motivated by the absence of research and using management earnings forecasts (MEFs) as a disclosure proxy, this study examines (1) why managers issue earnings forecasts, (2) what firm‐specific factors influence MEF characteristics, and (3) how MEF behaviour changes as litigation risk increases. Based on theories in information economics, a theoretical framework for MEF behaviour is formulated which includes antecedent influencing factors related to firms‟ internal and external environments. Applying this framework, hypotheses are developed and tested using multivariate models and a large sample of hand-collected MEFs (7,213) issued by top 500 ASX-listed companies over the 1994 to 2008 period. The results reveal strong support for the hypotheses. First, MEFs are issued to reduce information asymmetry, litigation risk and signal superior performance. Second, firms with better financial performance, smaller earnings changes, and lower operating uncertainty provide better quality MEFs. Third, forecast frequency and quality (accuracy, timeliness and precision) noticeably improve as litigation risk increases. However, managers appear to be still reluctant to disclose earnings forecasts when there are large earnings changes, and an asymmetric treatment of news type continues to prevail (a good news bias). Thus, the findings generally provide support for the effectiveness of the CDR regulatory reforms in improving disclosure behaviour and will be valuable to market participants and corporate regulators in understanding the implications of management forecasting decisions and areas for further improvement.

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.

Actions for declaratory or injunctive relief by the Corporate Regulator under s 471B of the Corporations Act

This article by Ben McEniery discusses the matters a court will consider when leave to commence or proceed against a company in liquidation is sought not by a creditor seeking to prove a debt, but by the corporate regulator pursuing declaratory or injunctive relief.

Open source innovation in physical products : advantages and disadvantages, a corporate perspective

A better understanding of Open Source Innovation in Physical Product (OSIP) might allow project managers to mitigate risks associated with this innovation model and process, while developing the right strategies to maximise OSIP outputs. In the software industry, firms have been highly successful using Open Source Innovation (OSI) strategies. However, OSI in the physical world has not been studied leading to the research question: What advantages and disadvantages do organisations incur from using OSI in physical products? An exploratory research methodology supported by thirteen semi-structured interviews helped us build a seven-theme framework to categorise advantages and disadvantages elements linked with the use of OSIP. In addition, factors impacting advantage and disadvantage elements for firms using OSIP were identified as: „h Degree of openness in OSIP projects; „h Time of release of OSIP in the public domain; „h Use of Open Source Innovation in Software (OSIS) in conjunction with OSIP; „h Project management elements (Project oversight, scope and modularity); „h Firms. Corporate Social Responsibility (CSR) values; „h Value of the OSIP project to the community. This thesis makes a contribution to the body of innovation theory by identifying advantages and disadvantages elements of OSIP. Then, from a contingency perspective it identifies factors which enhance or decrease advantages, or mitigate/ or increase disadvantages of OSIP. In the end, the research clarifies the understanding of OSI by clearly setting OSIP apart from OSIS. The main practical contribution of this paper is to provide manager with a framework to better understand OSIP as well as providing a model, which identifies contingency factors increasing advantage and decreasing disadvantage. Overall, the research allows managers to make informed decisions about when they can use OSIP and how they can develop strategies to make OSIP a viable proposition. In addition, this paper demonstrates that advantages identified in OSIS cannot all be transferred to OSIP, thus OSIP decisions should not be based upon OSIS knowledge.