bluuebunny/crossref_metadata_2025 huggingface dataset:
Directors’ Recommendations on Takeover Bids and the Management of Earnings: Evidence from Australian Takeovers
Authors: Eddey Peter H. , Taylor Stephen L.
Published: March 2003

This article investigates whether Australian companies manage their earnings during takeover bids in a manner consistent with the earnings‐management hypothesis. This hypothesis predicts that directors who reject a bid use accrual accounting to increase current earnings, supporting their claim that the bid, relative to earnings, is inadequate. Likewise, directors who accept a bid are predicted to use accrual accounting to decrease current earnings. Overall, the results are not consistent with the earnings‐management hypothesis. However, some components of unexpected accruals (our proxy for managed earnings) change in the direction predicted by the earnings‐management hypothesis, although these changes are not statistically significant. Using industry adjusted performance measures the conclusion is that unexpected accruals are primarily a manifestation of poor financial performance of target firms in the period leading up to the takeover bid.
Motivations of Australian Listed Companies Effecting Share Buy‐Backs
Authors: Mitchell Jason David , Robinson Peter
Published: March 2003

The bulk of prior research on share buy‐backs has been undertaken in the U.S. As the legislative environment and capital market perception of buy‐backs in Australia are different to the U.S., it is both desirable and necessary to examine the motivations of Australian share buy‐backs. Contemporary Australian financial press reports, the U.S. financial management literature and anecdotal evidence provide numerous feasible motivations for a company to undertake a buy‐back. In an Australian context, this article considers the following: (a) the development of the legislative framework relating to share buy‐backs and why some forms of buy‐back are preferred over others; (b) a set of potential motivations (reasons) for Australian companies undertaking a buy‐back; and (c) the actual motivations as provided in ASX announcements by forty‐four listed companies effecting sixty‐seven share buy‐backs over the period 1990 to 1995. Results reveal that motivations differ depending on the type of buy‐back and are reasonably consistent across time. The two prime motivations for on‐market buy‐backs are: (a) signalling of future expectations (underpricing), and (b) an attempt to increase financial performance (EPS) and/or position (NAB/share). For selective buy‐backs, the main purpose is to remove specific shareholders from the share register. Employee buy‐backs are generally seen as an off‐market means of providing a market for the company’s shares. Finally, the overriding motivation for equal access buy‐backs is as an alternative to dividends.
The Case for Simplicity in Accounting
Authors: Chambers R. J.
Published: March 2003

The past fifty years have seen a surge of accounting novelties without parallel in its prior history. Yet countless tradespeople and firms have survived and prospered under the guidance of persons of modest education and a measure of commonsense, while many ‘high‐fliers’ around the world have crashed spectacularly to the dismay of those who trusted in their acumen. One reason for this conjunction seems to be the reliance of segments of the financial community on apparently sophisticated but quite naive innovations in accounting practice. It suggests reform of accounting ideas and practices by recourse to the essential simplicity of commercial intercourse.
The Impact of Statutory Sanctions on the Level and Information Content of Voluntary Corporate Disclosure
Authors: Brown Philip , Taylor Stephen L. , Walter Terry S.
Published: March 2003

This article examines the effect of statutory civil and criminal sanctions on voluntary corporate disclosures by firms listed on the Australian Stock Exchange (ASX). Apart from direct investigation of the quantity of voluntary disclosure, we also investigate several possible consequences of altered corporate disclosure policies, namely properties of analysts’ forecasts, the degree to which share prices anticipate the information content of periodic earnings reports, and the relationship between volatility and corporate disclosures. Results suggest that, post‐sanctions, any increase in voluntary disclosure is confined to smaller firms and those which performed relatively poorly. Moreover, analysts’ earnings forecasts did not become more accurate or less diverse following the introduction of statutory sanctions, and there was no statistically significant increase in the weight placed on each disclosure’s ability to explain return volatility. There is some evidence that share prices have anticipated earlier the value relevant components of annual periodic accounting data, although this result is again confined to smaller firms. Although the tests used are not independent and have a limited time period post‐sanctions, the results cast doubt on the extent to which the imposition of substantive civil or criminal sanctions affects corporate disclosure policy.
The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry
Authors: Hardwick Philip , Adams Mike
Published: March 2003

This paper examines the determinants of financial derivatives use in the United Kingdom life insurance industry. We estimate a probit regression model and a Heckman two‐stage sample selection regression model using a sample of eighty‐eight U.K. life insurers in 1995. Our results indicate that the propensity to use derivative instruments is positively related to a firm’s size, leverage and international links, and negatively related to the extent of reinsurance. We also find that mutual life insurance firms have a greater propensity than stock firms to use derivatives. The positive relation with leverage and the negative relation with reinsurance support the hypothesis that U.K. life insurers use derivatives to offset risk, rather than as a speculative means of income generation. Firm size and organizational form are the main influences on the extent of financial derivatives use.
A Trusteeship Theory of Accounting for Natural Capital Assets
Authors: Barton Alland D.
Published: March 2003

One of the problems encountered in implementing accrual accounting in the government sector is that of accounting for natural capital assets provided freely to government and which are used as public goods. Professional accounting standards require that these assets be valued and included in the government’s statement of assets and liabilities. The problem is not encountered in business accrual accounting because business neither acquires assets freely nor provides services to the public on a non‐commercial basis.

Various issues surrounding accrual accounting for natural capital assets used as public goods are examined in this article. The nature and characteristics of such assets, and the distinctions between private goods and public goods markets, are first explained to set the context for examination of the issues. Then the issues as to whether natural capital assets should be treated as assets for accounting purposes and included in the government’s statement of financial position are analysed according to FASB standards; it is concluded that they are not assets. Rather, it is proposed that these assets used for the provision of non‐commercial services to the public should be treated in a separate category as public goods assets which are held in trust by the government on behalf of the nation, for the benefit of current and future generations and for the preservation of the natural ecology of the nation. Commercial valuations are not relevant for these assets and they need not be valued in financial terms for their good management.
Income Shifting and International Transfer Pricing: A Three‐Country Example
Authors: Emmanuel Clive R.
Published: March 2003

There is a long held belief that international transfer pricing (ITP) is used by multinational enterprises (MNEs) to minimize global tax liability. On the one hand, this is a rational economic response to market imperfections created by national governments. An alternative view decries such actions as anti‐competitive and an abuse of power. This article ex‐amines the potential benefit to enterprises of ITP manipulation when a real world combination of fiscal rules are simultaneously applied in practice. The countervailing impact of different national rules appears to result in ITP having a minor significance on parent after‐tax income. Differential rates cause minor benefits but the absence of a form of tax, such as withholding tax, can provide substantial opportunities to maximize global after‐tax income through the choice of transfer price. ITP can therefore provide benefits when national jurisdictions do not have consistent forms of taxation. In all the scenarios explored, major variations are apparent in the after‐tax income of subsidiaries operating under different combinations of fiscal regimes and ITP policies. The tension between head‐quarter and subsidiary management may be most pronounced when a subsidiary is located in a jurisdiction not having a complete range of tax forms.
Asset Revaluations and Debt Contracting
Authors: Cotter Julie
Published: March 2003

The research question investigated is: Do managers of Australian firms use upward asset revaluations to reduce debt contracting costs? Prior research, using sample periods from the 1970s and early 1980s, provides evidence that asset revaluations are used to reduce the costs of debt contracting (see Whittred and Chan, 1992; Brown et al., 1992; Cotter and Zimmer, 1995). However, considerable changes to the institutional set‐ting have occurred in the past decade. These institutional changes include increased regulation of asset revaluations and disclosures, changes in the macroeconomic environment, and changes in the Australian debt market. Particularly, there has been a shift in emphasis from public to private debt. The relationship between asset revaluations and debt contracting is examined in the current setting, using refined measures of contracting variables. Interestingly, the results of prior research do not replicate in the current setting. In order to further examine the potential impact of changes to the institutional setting, a series of interviews with chief financial officers is undertaken. The conclusion drawn from this additional analysis is that the relatively closer relationship between firms and their bankers in the current institutional setting has caused many firms to choose footnote disclosure of undervalued assets in preference to recognizing an upward asset revaluation in the balance sheet.
Chambers on Price and Price‐Level Variations: Exiting Intellectual Grooves
Authors: Clarke Frank L.
Published: March 2003

From early in his enquiry, Chambers perceived the price variation problem in accounting to not be a separate phenomenon related to inflation or deflation, but to be the failure in conventional accounting to incorporate the full financial effects of the medium, money, in which its calculations were made and its output expressed. He absented himself from the inflation accounting focus early in the 1950s and set about an enquiry into the nature and meaning of monetary calculation and measurement, within a framework of accounting functioning to provide indications of the wealth and progress of firms. Accordingly, when the substantial literature on the topic and the report of governmental enquiry into accounting and inflation emerged during the early 1970s he addressed the various proposals by drawing upon his theory of Continuously Contemporary Accounting (CoCoA) with devastating effect.
What Are Assets and Liabilities? Where Is True North? (Accounting That my Sister Would Understand)
Authors: Schuetze Walter P.
Published: March 2003

This is an article about what I think financial accounting and reporting ought to look like—about my vision that the singular focus of financial accounting and reporting should be on cash, that is, cash itself, contractual claims to cash, things (assets) that can be converted into cash, and obligations to pay cash, and that assets and liabilities should be stated at fair value in corporate balance sheets. I call this formulationTrue North.

I previously have written about how we should keep financial accounting and reporting simple (‘Keep It Simple’, Accounting Horizons, June 1991, pp. 113–17). I also have written about how assets should be defined for accounting purposes (‘What Is an Asset?’, Accounting Horizons, Septem‐ber 1993, pp. 66–70). This article builds on those two earlier ones. It deals with definitions of assets and liabilities that should be recognized (that is, displayed, shown, or reported) in corporate balance sheets and how the recognized assets and liabilities should be measured when reported in those balance sheets.
Institutional Pressures, Monopolistic Conditions and the Implementation of Early Cost Management Practices: The Case of the Royal Tobacco Factory of Seville (1820–1887)
Authors: Carmona Salvador , Macías Marta
Published: March 2003

In spite of our increasing understanding of the underpinnings of early cost management systems, little is still known about the reasons for the implementation of such systems in firms operating under monopolistic conditions. This article studies the enforcement by law of cost and budgeting systems in the Royal Tobacco Factory of Seville (Spain), a manufactory of the state‐owned monopoly. By doing this, we seek both to enhance understanding of the state’s motivation to enact institutional pressures aiming at the implementation of early cost management practices as well as to study different organizational responses to simultaneous pressures arising from a single institutional source. It is suggested that the state’s motivation to legally enforce the implementation of early cost and budgeting systems may be attributed to (a) the seeking of legitimacy by the state regulatory body, (b) the active agency of senior employees of the state regulatory body to keep their jobs and compensation packages on the eve of the privatization of the industry, and (c) the interest of the regulatory agency to instil the basis of mimetic isomorphism within the monopoly. Different responses by the RTF to pressures for reporting cost and budgeting information were explained by (a) the expected diffusion of firm’s non‐conformity within the institutional area, (b) the expected impact of institutional rules and norms on organizational goals, and (c) the extent to which the institutional source is consistent in its demands.
Clarification and Extension of Beaver’s Definitions of Market Informational Efficiency: A Note
Authors: Vickrey Don , Bettis Carr
Published: March 2003

Beaver (1981a, 1981b) provides sound conceptual definitions of market informational efficiency. Recently, his definitions have been operationalized in experimental‐markets studies dealing with market informational efficiency. Given these successes, we extend Beaver’s definitions to make apparent the relationships among the publicly available information system and the market information system and related signals. This extension provides a foundation for distinguishing between tests of semistrong‐form and strong‐form efficiency in the contexts of Beaver’s definitions and related experimental‐markets studies. We also provide a proof which identifies the necessary and sufficient condition for the convergence of these forms of market informational efficiency.
Evaluation of Extraordinary and Exceptional Items Disclosed by Hong Kong Companies
Authors: Jaggi Bikki , Baydoun Nabil
Published: March 2003

This study evaluates extraordinary and exceptional items (EI) disclosed in financial statements by Hong Kong companies from 1989 to 1993, prior to revision of SSAP 2. The results indicate that disclosures of positive EI were associated with market expectations of profit before taxes. If market expectations were higher than profit before EI and taxes (PBEI), positive EI (gains) were likely to be disclosed to adjust PBEI upwards and thus reduce the gap between reported and expected profits.

The results relating to negative EI (losses) showed that if companies had low historical economic performance they were more likely to disclose negative EI. Because weak historical economic performance is likely to be associated with low market expectations, management used this opportunity to ‘spring clean’ in order to show better economic performance in future years.

These findings suggest that managers engage in earnings management through disclosure of extraordinary items when they have flexibility to do so. In order to improve quality of financial disclosure, better accounting standards need to be developed for disclosures of extraordinary items, especially by newly developed and developing countries where accounting standards are at the formative stage.
Discretionary Disclosure: A Note
Authors: Richarson Scott
Published: March 2003

This article extends the models of discretionary disclosure. The level of disclosure will be affected by the costs of such disclosure. Verrecchia (1983) shows that when the cost of disclosure is fixed then the threshold level of disclosure is positively related to that cost. Verrecchia (1990a) shows that in the presence of fixed disclosure costs the threshold level of disclosure is negatively related to the quality of information (precision) to be disclosed. The intuition for the result is that as information is more precise, withholding it is more detrimental for the firm and hence the threshold for disclosure is lowered. The model here expands the cost of disclosure to be a function of information quality. When this is the case, the Verrecchia (1990a) unambiguous result does not hold. The presence of information quality in the cost function creates a countervailing force such that more precise information does not necessarily imply more disclosure. This creates the intuitive result that precise information of a proprietary nature might be withheld from the market.
A Possible Economic Rationale for Straight‐Line Depreciation
Authors: Green C. D. , Grinyer J. R. , Michaelson R.
Published: March 2003

Straight‐line depreciation (SL) appears to be a crude procedure that is unsupported by economic logic. Nevertheless, internationally, it is the most widely used method of allocating the costs of fixed assets to accounting periods by way of depreciation charges. Many authors attribute its use to its simplicity. That justification may be deemed to be insufficient, since ideally SL should provide accounting figures with economic meaning under known assumptions. Such meaning might be defined by reference to the net present value (NPV) calculus, which is recommended in the literature of financial management for the evaluation of economic flows associated with the acquisition of fixed assets. After briefly considering economic depreciation alternatives discussed in the literature, this article selects the Ladelle/Brief/Grinyer Earned Economic Income (EEI) calculus as a theoretical model for the examination of SL depreciation. EEI provides signals which are consistent with those given by NPV and can satisfy the accounting constraint that one should recognize realised profits only. The article employs mathematics and deterministic computer simulation to explore some circumstances in which SL provides figures which approximate to the net investment charges using the EEI calculus. It shows that there are many patterns of declining annual benefits from ownership for which SL provides an approximation to EEI net charges that could be considered to be adequate. Consequently SL often provides more economically interpretable information, and consequently is more defensible, than is typically assumed in the literature relating to accounting.
Public Sector Outsourcing as an Exchange Option
Authors: Johnstone David
Published: March 2003

The outsourcing of government activities is justified primarily by expected cost savings. In the formal process of determining whether there are potential savings from contracting out, public sector agencies in Australia are required by published government guidelines to measure the relevant costs of in‐house activities and to compare these with external bids. Similar and in technical respects essentially identical requirements exist in Great Britain. The cost comparison methodology advocated in these various publications is deficient in that it makes no allowance for the financial value of the option to contract out. Like other options, the option to contract out provides a hedge against uncertainty, and is all the more valuable the more uncertain (less predictable) the agency’s future costs of in‐house and external service arrangements. In the face of inherently uncertain cost streams, there is something to be said for conserving all available options. By interpreting the option to contract out as a financial asset with theoretically measurable value, arguments for government agencies maintaining at least some in‐house capabilities are given a basis in ‘rational economics’.
On the Relevance and Comparability of Segmental Data
Authors: Emmanuel C. R. , Garrod N.
Published: March 2003

The recent adoption in the U.S.A. and Canada of the management approach to identify reportable segments places relevance of the disclosed segmental data as the overriding concern over comparability. This study investigates whether relevance and comparability are mutually exclusive or can be simultaneously achieved in segmental disclosure. It is explicitly recognized that both properties are a joint function of segment performance and segment identification, the performance–identification conundrum. By using a data set drawn from the U.K., a jurisdiction that explicitly allows directors’ discretion when identifying reportable segments, and a series of tests which remove performance differences, the potential impact of segment identification on the relevance/comparability issue is highlighted. The results of the tests reveal that for a significant portion of the sample the levels of both relevance and comparability are simultaneously low due to the segment identification choices made. These choices appear to match the possible outcomes of following the management approach to identification.By implication, the adoption of the management approach may lead to reduced comparability and relevance in some cases.
An Application of Data Envelopment Analysis to the Evaluation of Audit Risk
Authors: Bradbury Michael E. , Rouse Paul
Published: March 2003

This article demonstrates how data envelopment analysis can be used to weight audit risk factors. Data from a previously reported study applying the analytic hierarchy process is used to facilitate a comparison between these two methods. Data envelopment analysis (DEA) has several advantages, including the ability to accommodate a range of expert opinions on the importance of a specific risk factor, rather than using the median or mean value. DEA can be used to provide high‐risk and low‐risk assessments and provides benchmark audit units from which other units can be evaluated.
Culture, Corporate Governance and Disclosure in Malaysian Corporations
Authors: Haniffa R.M. , Cooke T. E.
Published: March 2003

Evidence from research conducted on corporate accounting indicates that the interaction of environmental factors in fluences disclosure practices. The purpose of this study is to examine the importance of various corporate governance and cultural (race and education) characteristics, in addition to firm–specific factors, as possible determinants of voluntary (non–mandatory accounting and non–accounting information) disclosures in the annual reports of Malaysian listed corporations. The results of the regression analysis indicate significant associations (at the 5 per cent level) between two corporate governance variables (viz. chair who is a non–executive director and domination of family members on boards) and the extent of voluntary disclosure. This finding has implications for corporate governance policy formulation by the Malaysian Institute of Corporate Governance (MISG). One cultural factor (proportion of Malay directors on the board) is significantly associated (at the 5 per cent level) with the extent of voluntary disclosure suggesting that governmental focus on culture may solicit a response to secrecy from those who feel threatened.
An Analysis of Post–Expectation Gap Voting Behaviour by the ASB
Authors: McEnroe John E.
Published: March 2003

In the United States, auditing standards are promulgated in the private sector by the Auditing Standards Board (ASB), which is a committee of the American Institute of Certified Public Accountants (AICPA). In contrast to the Financial Accounting Standards Board (FASB), ASB members are not required to sever ties with their firms (parent organizations). As a result, ASB members have an opportunity to act as agents of their parent organizations in casting their votes for proposed Statements on Auditing Standards (SASs). McEnroe (1994) found such behaviour to exist in relation to the ‘expectation gap’ SASs and suggested as an area of future research to ascertain if this type of voting behaviour would continue on subsequent SASs. Accordingly, this research investigates the votes cast by the ASB members on the post–expectation gap SASs in an effort to determine if ‘agency’ voting has continued. The results support the proposition that agency voting behaviour is still prominent on the part of the ASB, even after repeated calls for its reformulation.
Auditors’ Conflict Management Styles: An Exploratory Study
Authors: Goodwin Jenny
Published: March 2003

This study explores the conflict management styles used by auditors when resolving disputes with clients concerning financial statement issues. Rahim’s (1983a, 1990) ROCI–II conflict management instrument was used to establish both the styles generally used and also those used in a scenario concerning possible inventory obsolescence. Size of the client and the strength of its corporate governance mechanisms were manipulated in the scenario. It was found that auditors indicate that they primarily use the integrating style to resolve disputes. The compromising and dominating styles are used to a lesser extent while the obliging and avoiding styles are rarely used. Partners are more likely than managers to use more assertive styles of conflict management. The size of the client and the strength of corporate governance mechanisms in place have a significant but relatively minor impact on the choice of styles. The study also identifies the parties whom the auditor would expect to help resolve the dispute. It was found that, when resolving a dispute with the client’s chief financial officer, the audit committee is perceived to give the most assistance, followed by the chief executive of icer.
Capital markets research and accounting standard setting
Authors: Brown Philip , Howieson Bryan
Published: March 2003

Accounting academics and practitioners have been known to question whether accounting research is as efficacious as it might be. This paper focuses on capital markets‐based research in accounting and how its potential contribution to the wider regulatory process can be realised more fully. Examples used are: research on corporate regulation; the move to ‘harmonise’ accounting standards; accounting for R&D; accounting for goodwill; and equity accounting.
The information environment and the ability of logit‐based financial statement analysis to predict abnormal returns
Authors: Morton Richard M. , Shane Philip B.
Published: March 2003

Holthausen and Larcker (1992) show that logit‐based financial statement analysis can predict abnormal returns on investments in equity securities. We argue that if this success of financial statement analysis is due to market inefficiency, then the procedure should work better for small firms than larger firms, where firm‐size proxies for the amount of information processing in the firm's information environment. We do not find greater predictable hedge portfolio returns associated with the analysis of small‐firm financial statements. Thus, our results conflict with the market inefficiency explanation. Our results are more consistent with financial statement analysis providing summary information about expected returns not subsumed by other risk proxies and not accounted for in the researcher's definition of abnormal returns.
Utilisation and restrictiveness of covenants in Australian private debt contracts
Authors: Cotter Julie
Published: March 2003

This paper investigates the accounting based covenants typically contained in the private debt contracts of listed Australian firms. In particular, cross sectional determinants of variation in covenant utilisation and restrictiveness are investigated. The primary source of data presented in the paper is a questionnaire completed by senior corporate managers of banks lending to listed Australian firms. In addition, standard and actual bank loan agreements are analysed. The survey results indicate that there is considerable cross‐sectional variation in the utilisation and restrictiveness of covenants included in Australian private debt contracts, with this variation being partially explained by firm size and industry membership. The covenants most likely to be included are leverage, interest coverage, current, and prior charges ratios.
The sensitivity of Australian industry equity returns to a gold price factor
Authors: Chan Howard , Faff Robert
Published: March 2003

This paper investigates the extra‐market sensitivity of Australian industry equity returns to a gold price factor over the period 1975 to 1994. We find, over the full sample period, that there has been a widespread sensitivity of Australian industry returns to gold price returns, over and above market returns. The sensitivity is found to be of positive sign for resource and mining sector industries, whereas it is of negative sign for the industrials sector. Further, there appears to be a change in importance of the gold price factor over time, as reflected by a comparison of subperiod gold price sensitivity estimates
Research in managerial accounting: Learning from others' experiences
Authors: Abernethy Margaret A. , Chua Wai , Luckett Peter F. , Selto Frank H.
Published: March 2003

The purpose of this paper is to identify the strengths and weaknesses of three research methods employed in managerial accounting: experimental, survey and field research. We do this by drawing on the three papers published in this issue of the Journal. These three papers provide the reader with a ‘behind the scenes’ exposé on the problems, choices and decisions confronted by the researcher during the method phase of the empirical study. The complexities associated with method are rarely reported in published papers nor is there any explanation of why effort is devoted to particular methodological issues. It is, however, important for the novice researcher to recognise these choices and problems, both when selecting a particular method, and in designing a study. We attempt to critique these papers in terms of choice of method and also the extent to which each of the studies satisfies the three ‘maxims’ of scientific method, namely, construct validity, internal validity and external validity. Our review demonstrates the trade‐offs that are necessarily made when designing a research study. There are, however, ways in which the effects of these trade‐offs can be minimised and we provide guidance as to how the study design might be improved to achieve this.
Experimental research method in a management accounting context
Authors: Schulz Axel K‐D.
Published: March 2003

In management accounting the experimental method has been under‐utilised compared to other disciplines such as auditing. This paper examines considerations necessary in experimental design to ensure both internal validity and experimental realism with the aim to increase utilisation of this methodology in management accounting. Task design, experimental design, experimental procedures and post‐test questionnaire design are addressed specifically as they form the basic building blocks of most experiments. This paper also examines ‘lessons’ learned both in the design and administration of the experiment to help researchers in the use of the experimental method. Potential changes to the experiment are discussed, as part of an opportunity to improve future research work using the existing or a similar experiment
A framework for the analysis of interview data from multiple field research sites
Authors: Lillis Anne M.
Published: March 2003

In general, papers reporting the results of research studies disclose little detail regarding attributes of study design, analytical processes and methods actually used by researchers. This paper describes in some depth the method choices and analytical protocol used in a field study project. The paper describes initially the link between research question, research design and analytical protocol. The major focus of the paper is the application of a systematic analytical protocol designed to encourage completeness and impartiality in the collection and analysis of qualitative data. These method issues are examined in the context of the author's experiences in the field and through the process of data analysis. The methods used are also examined critically in retrospect.
Ex‐dividend Day Pricing in New Zealand
Authors: Bartholdy Jan , Brown Kate
Published: March 2003

Controversy continues over the question of tax clientele effects in the pricing of shares that pay dividends. The empirical results remain inconclusive, with variations in testing methods and sample formation the probable causes of much of the variation in outcomes. This study focuses on testing for the presence of a tax clientele effect consistent with prior tests for the same effect using a sample from a particular tax regime period in New Zealand in which companies could pay either or both taxable and non‐taxable dividends. The results are generally consistent with the presence of a tax clientele effect in the New Zealand market for the time period, while providing essentially no support for the short term trading hypothesis.

JEL classification: G10; G15
The value relevance of superannuation disclosures by Australian‐listed firms sponsoring defined benefit plans
Authors: Ang Nicole , Gallery Gerry , Sidhu Baljit K.
Published: March 2003

This paper investigates the value relevance of (employer sponsored defined benefit plan) superannuation disclosures required by AASB 1028. It addresses the competing claims by standard setters and lobbyists that such disclosures would (not) enhance the relevance and reliability of financial statements. It presents three principal findings. First, disclosed superannuation information is value relevant in the industrial sector, where these items tend to be material. Second, the market weights on the required disclosures are typically higher than those on recognised assets and liabilities. Third, and in contrast to the findings in similar US studies, accrued benefits do not have higher explanatory power relative to vested benefits.
The value of dividends: Evidence from cum‐dividend trading in the ex‐dividend period
Authors: Walker Scott , Partington Graham
Published: March 2003

What is the market value of a dollar of fully franked dividends? We address this question by exploiting a new phenomenon in the Australian capital market—the trading of shares cum‐dividend during the ex‐dividend period. This allows a relatively clean measurement of the combined value of dividends and the associated tax effects net of transactions costs. Consistent with the theoretical model that we develop, the evidence from this sample is that one dollar of fully franked dividends, after tax effects and transaction costs, is worth significantly more than one dollar. We also show that, in contrast to our measure, the traditional measure of the ex‐dividend price drop‐off, based on close to close prices, has a lower average value and exhibits substantially more cross sectional variation.
The impact of share price on seasonality and size anomalies in Australian equity returns
Authors: Gaunt Clive , Gray Philip , McIvor Julie
Published: March 2003

Given the high correlation between a firm’s stock price and market capitalisation, it is possible that the well‐documented size anomaly is masking a share‐price effect. Using a seemingly unrelated regression model to accommodate contemporaneous correlation between portfolios, we estimate the separate effects of firm size and share price on returns to Australian equity portfolios. The analysis is also extended to estimate seasonal components of size and price effects. Our major findings are: (i) firm size and share price have significant and independent effects on portfolio returns averaged over all months, (ii) the familiar negative relation between size and returns is confirmed across all months, and (iii) the relation between share price and returns is negative in July and positive in all other months (with the exception of January where no price effect occurs). These findings, which are consistent across sub‐periods and robust to method variations, highlight the need for future research to provide an economic foundation for the relation between average returns, size and price.
The effect of experience and complexity on order and recency bias in decision making by professional accountants
Authors: Arnold Vicky , Collier Philip A. , Leech Stewart A. , Sutton Steve G.
Published: March 2003

Recently, questions have been raised regarding the impact of experience on the susceptibility of professional accountants to judgment bias—particularly order and recency biases as predicted in the Belief‐Adjustment Model. The Belief‐Adjustment Model predicts recency effects will always exist in complex decision domains (regardless of experience). Complexity is defined within the model as a function of task familiarity and information load. The prior studies on experience and bias in accounting domains have focused on varying task familiarity and have found that task familiarity can mitigate order/recency bias. In this study, complexity is operationalised through heavy information load (a condition more consistent with professional accounting environments) while maintaining a high level of task familiarity. Two experiments were conducted. The first experiment utilised a going concern decision using highly experienced partners and managers. The second experiment was conducted in the insolvency domain and used 87 experienced insolvency practitioners. The results indicate that experience does not mitigate order/recency bias under conditions of heavy information load.
An examination of order effects in auditors’ inherent risk assessments
Authors: Monroe Gary , Ng Juliana
Published: March 2003

While recency effects have been reported in a variety of audit tasks, recent studies suggest that these effects may be mitigated under certain conditions. The importance of investigating order effects in auditors’ judgments rests with its potential to impact on the efficiency and effectiveness of audits. Since current studies suggest that recency effects may not impact on all audit situations, it is necessary to identify conditions or variables in the task environment that either induce or mitigate recency.

This study examines the occurrence of order effects in auditors’ inherent risk assessments, a task not previously examined. Using a case study administered to 70 auditors, this study found that auditors’ judgments were not influenced by the order in which audit evidence was evaluated. Rather, the results suggest that judgments of inherent risk may be biased towards conservatism. This may not be surprising given the negative consequences associated with failing to adequately plan an audit. This may cause auditors to act cautiously and thus mitigate recency effects.
The impact of lunchtime closure on market behaviour: evidence from the Sydney Futures Exchange
Authors: Frino Alex , Winn Roland
Published: March 2003

This paper examines the impact of lunchtime closure on market behaviour. Between May and September, 1994 the Sydney Futures Exchange trialed lunchtime trading. The trial provides a unique natural laboratory experiment for examining the impact of lunchtime closure. The analysis reported in this paper documents abnormally high bid ask spreads, price volatility and trading volume on re‐opening of the market following lunchtime closure. These results confirm that closure has an impact on trading activity, and are consistent with the effects of strategic informed trading, a loss in price discovery and/or trading associated with risk transfer. An abnormal increase in trading volume prior to lunchtime closure is also documented, providing unambiguous evidence of trading activity motivated by risk transfer. Overall these results imply that lunchtime closure disrupts trading activity and reduces market quality by imposing additional costs on market participants.
Disclosure of reserve quantum in the extractive industries
Authors: Mirza Malik , Zimmer Ian
Published: March 2003

We explore why some firms in the extractive industries disclose mineral reserve quantum in their annual reports and others do not. We propose that the firms’ reserve disclosure policies are a function of the extent of information asymmetries, as well as information production, litigation and proprietary costs. More specifically, we propose that a firm's decisions to disclose reserves in the annual report are a function of the stage of the firm's operations, use of project financing, and the cost of measuring reserves. Empirical tests are confirmatory.
Managements’ views on share buy‐backs: an Australian survey
Authors: Mitchell Jason D. , Dharmawan Grace V. , Clarke Alex W.
Published: March 2003

Share buy‐backs are a relatively new concept in the Australian business environment. This study surveys managements’ motivations and various other aspects concerning share buy‐back activity. The results reveal that these motivations vary across the five different types of buy‐backs. For on‐market buy‐backs the most relevant motivations are to improve financial performance (i.e., earnings per share) and financial position (i.e., net asset backing per share) followed by signalling of future expectations or underpricing. Interestingly, managements’ response regarding the relevant motivations is similar regardless of whether their companies had conducted a buy‐back or not. This provides evidence of widespread support for the relevant motivations. In addition, Australian managers believe that they are familiar with the potential benefits and legislative requirements of buy‐backs, but that their shareholders often do not understand or are not favourably disposed towards buy‐back events. Finally, two major explanations are identified for the initial conservatism towards buy‐backs. Those explanations are (i) legal complexity and cost and (ii) the perceived negative disposition of the sharemarket towards buy‐backs.
Derivative financial instrument use in Australia
Authors: Berkman Henk , Bradbury Michael E. , Hancock Phil , Innes Clare
Published: March 2003

This paper examines the relation between derivatives use and financial characteristics of Australian industrial and mining firms. The firm characteristics proxy for financial distress, tax losses, managerial ownership, growth opportunities, the ability to generate operating cash flows and liquidity. We also control for firm size, dividends and exposure to foreign exchange risk. The results show that firm size and leverage are the main explanatory variables for derivative use for both industrial and mining firms
Earnings management surrounding CEO changes
Authors: Wells Peter
Published: March 2003

This paper investigates the extent of earnings management in the periods surrounding CEO changes by Australian firms. Evidence is presented of incoming CEOs undertaking earnings management to reduce income in the year of CEO change, with abnormal and extraordinary items being the primary vehicle through which this is achieved. This result is consistent with the notion of new CEOs engaging in an ‘earnings bath’, and is strongest for non–routine CEO changes, where the opportunities to manage earnings are greatest. Extending prior work, classification of CEO changes as routine or non–routine is based on an expanded information search, and this provides insights into the CEO change process and identifies problems with simpler mechanistic classification methods. Additionally, detailed information of the operation of the modified Jones model for estimating expected accruals is presented, and this is consistent with such models having low explanatory power in identifying abnormal accruals.
Do share prices matter?
Authors: Dyl Edward A. , Elliott William B. , Handley John C.
Published: March 2003

This paper examines whether the cross sectional variation in Australian share prices is partially explained by measures of firm size and ownership characteristics in a manner that is consistent with firms behaving in accordance with Merton’s (1987) model of capital market equilibrium with incomplete information. Based on a sample of firms whose shares were traded on the ASX during 1995, we show that firms largely owned by less wealthy shareholders tend to have low stock prices, although this relation is not linear. In addition, larger, better–known, firms tend to have higher stock prices. These findings are consistent with prior evidence from US markets, and suggest the existence of a shareholder clientele effect in Australia that is related to the share price of the underlying firm.
Relative performance of dynamic portfolio insurance strategies: Australian evidence
Authors: Huu Do Binh
Published: March 2003

This paper simulates the performance of synthetic put portfolio insurance and Constant Proportion Portfolio Insurance (CPPI) using Australian data for the period from 1992 to 2000. These strategies are implemented by trading in the index and bills and simulation is conducted across 18 scenarios. We find that while the CPPI dominates in scenarios using daily rebalancing, the synthetic put strategy delivers better outcomes when value based triggers are used. More importantly, although the two per cent market move trigger emerges as the optimal rebalancing choice, overall, neither strategy appears justifiable in terms of achieving downside protection or allowing upside gain.
Auditor conservatism and voluntary disclosure: Evidence from the Year 2000 systems issue
Authors: Clarkson Peter M. , Ferguson Colin , Hall Jason
Published: March 2003

This study further examines the phenomenon of conservative auditor behaviour by considering the level of voluntary disclosure of Year 2000 remediation information in company annual reports. Previous studies have provided evidence of conservative auditor behaviour by examining the link between Big 6 auditor choice and accruals (Francis and Krishnan 1999; Becker et al., 1998; Defond and Subramanyam 1998). Protecting their reputation capital increases Big 6 auditor incentives to act conservatively to avoid litigation risk. We propose and find that Big 6 auditor clients disclose more Year 2000 remediation information than non–Big 6 auditor clients.
Accounting research and policy making
Authors: Swieringa Robert J.
Published: March 2003

This paper discusses the role of research information in policy making, describes some instances in which that information played an important role, and concludes with observations about ways to develop enhanced relationships between researchers and policy makers.