Showing papers in "Australian Journal of Management in 2015"

Corporate social responsibility, the cost of equity capital and ownership structure: An analysis of Chinese listed firms

Abstract: This study examines the effect of corporate social responsibility (CSR) towards primary stakeholders on the cost of equity capital in Chinese listed firms, and divides the sample into state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs) for comparison. We construct a set of CSR index systems to measure the quality of the CSR practices and use several approaches to estimate firms’ ex ante cost of equity capital. The results show that firms with higher CSR scores have significantly lower cost of equity capital. In particular, we find that investments in improving CSR towards investors make the greatest contribution to reducing firms’ equity financing costs, and the cost of capital effects of CSR is more significant in recessions than in economic booms. In addition, SOEs have better CSR and lower cost of equity capital than NSOEs, but the effect of CSR in reducing the cost of equity capital is greater for NSOEs than for SOEs. The findings suggest that CSR toward primary stakeholders can be ...

A review of accounting research in the Asia Pacific region

Abstract: In this paper, we review scholarly accounting research published within the Asia Pacific Region by analysing nine of the main accounting journals within the region along five dimensions. The nine journals we focus on are: Accounting, Auditing and Accountability Journal; Australian Accounting Review; Abacus; Accounting and Finance; Australian Journal of Management; Accounting Research Journal; Journal of Contemporary Accounting and Economics; Managerial Auditing Journal; and Pacific Accounting Review. The five dimensions we consider are: the most frequently cited papers; topical coverage; impact on practice; research method; and noted authors. Our review leads us to conclude that the accounting journals published within the Asia Pacific region make a significant contribution to research and practice both within the region and internationally.

Change process characteristics and resistance to organisational change: The role of employee perceptions of justice

Abstract: Although there are many potential causes of failed change, ‘resistance to change’ is widely recognised as a significant contributor to this problem. Much of the literature relating to resistance has focused on the context-specific antecedents which can be divided into those relating to change outcomes and those that focus on change implementation. Justice research acknowledges the importance of employee perceptions of fairness in change management, and identifies it as a key factor in developing positive employee attitudes toward organisational change. Using change process characteristics of Leader-Member Exchange (LMX), participation and information as antecedents, the aim of the present study was to examine the influence of employee perceptions of justice on resistance to change. The results of a survey of 100 employees in an Australian workplace indicate that informational justice mediated the relationship between LMX and resistance to change.

Divestment from fossil fuel companies: Confluence between policy and strategic viewpoints

Abstract: In October 2014, the Australian National University announced that it was divesting from seven fossil fuel-intensive companies. This announcement sparked an unprecedented response in the community, both positive and negative. We examine this decision, the divestment movement in general, the science behind the issue and strategic responses, both policy and organisational. We argue that a confluence between policy responses and organisational responses is beginning to emerge that will lead to greater action on climate change.

The rise and fall of startups: Creation and destruction of revenue and jobs by young companies

Abstract: Using a large multi-country multi-industry sample of over 158,000 companies, the early-stage company sector is documented to have sizable destruction of revenues and jobs and as well as sizable gross creation of revenues and jobs The creation aspect has captured the dominant attention of researchers, commentators, and policy makers Destruction, despite its large magnitude, has long been a backwater of research and most commentary on this sector Destruction is not simply non-growth but rather prior growth that is subsequently reversed This paper analyzes creation and destruction evidence across 10 different countries and across eight different major industry groups Yearly growth/decline rates using revenues and headcount for Years 2 to 5 are analyzed In each of the three growth years examined there are large amounts of destruction as well as creation simultaneously occurring For example, in Year 5 gross revenue destruction is 34% of gross revenue creation whilst gross job destruction is 65% of gross

Qualitative theory in finance: Theory into practice

Abstract: This paper discusses the application of qualitative theory in finance research. Six qualitative theoretical orientations are presented to demonstrate a range of philosophical perspectives which a researcher may consider when conducting qualitative inquiry. Finance examples are provided for applied ethnography, content analysis, social constructivism, grounded theory, systems theory, and critical change theory. By aligning and bringing theory into practice, researchers engaged in qualitative inquiry may investigate specific social actions so as to make credible sense of complex circumstances.

The organizational culture of public sector organizations in Australia

Abstract: This paper provides an empirical description of the organizational culture of public sector organizations in Australia. A comparison of the culture over time and in comparison to the culture of private sector organizations is provided. Data were collected through mail survey questionnaires. The findings show variations in culture and in cultural change across different types of public sector organizations. While some types, specifically local councils, have come to emulate the culture of private sector organizations, the results show little change having occurred in the culture of other types, specifically government departments and agencies, which continue to lag behind their private sector counterparts in the cultural factors of Outcome Orientation and Innovation.

Financial literacy, financial judgement, and retirement self-efficacy of older trustees of self-managed superannuation funds

Abstract: We investigate relationships between retirement self-efficacy, financial literacy and financial judgement across a sample of older trustees of self-managed superannuation funds (SMSFs). Aside from demographic factors, we explore self-rated dementia behaviours, general mental ability, mastery and risk tolerance. An increasing number of older people are controlling significant assets, particularly those who elect to become self-managed superannuation fund trustees. The ageing population, including self-managed superannuation fund trustees, is susceptible to cognitive decline with advancing age. We find that cognitive ability and self-rated behavioural dementia symptoms both relate to financial literacy. Variance in retirement self-efficacy was explained by age, cognitive ability, financial literacy, mastery and self-rated behavioural dementia symptoms. Those reporting dementia symptoms appear more vulnerable to making poor financial judgements. Findings have important implications for financial literacy int...

Disappearing women: Why do women leave senior roles in finance? Further evidence

Abstract: This paper builds on the findings of the author (published in this issue) in terms of understanding what leads women to leave senior roles in Finance. Using mixed methods techniques, a survey of 90 women suggests women leave due to the interplay of a trigger for leaving, coupled with having choice. The trigger appears to be a combination of work frustrations and personal triggers. While triggers lead women to want to leave, having the ability to leave appears important to actually leaving. The quantitative results support the qualitative findings. They suggest the way work is structured in the industry, seeking change and having choice are important factors in a woman’s decision to leave. For women who left the industry, feeling they had achieved all they wanted to from the job, feeling there is more to life than their job and having financial security may play a key role in the choice to leave. Senior women in Finance have many options outside their job – perhaps women leave senior roles simply because t...

Voluntary disclosure and the cost of capital

Abstract: We investigate the association between voluntary disclosure and the risk-related discount investors apply to price. First, we study the association between (endogenous) disclosure choice and the discount in price induced by changes in the underlying model parameters: this informs empirical research that ignores endogeneity of disclosure by, for example, omitting the exogenous determinants of disclosure and the discount in price from the regressions employed. Second, we investigate the incremental effect of disclosure on the discount in price: this informs empirical research that controls for the direct effect of exogenous factors on the discount in price by, for example, including the exogenous variables in regression models employed. Finally, we examine the incremental effect of disclosure on the discount in price when changes in disclosure are not induced by changes in underlying exogenous parameters: this further informs empirical research that controls for the effect of exogenous factors on both the d...

Discussions on long-term financial choice

Abstract: We analyse focus group discussions about long-run (retirement) financial decisions, and explore the extent to which participant responses are related to the oft-used behavioural explanations of financial choice. We find that persons of all ages understand the importance of long-term savings, but face many challenges in preparing for retirement. There is mixed support for a range of associated behavioural explanations. Complexity, relevance of decisions, and uncertainty come up repeatedly in all focus groups, irrespective of the age of the participants. The use of heuristics, confidence, costs of mistakes, mental accounting, and the importance of social interaction appeared of less immediate relevance to all groups. We discuss the implications of these findings for how the financial services and superannuation industries communicate with members. There appears to be a general view from the focus groups that breaking large, complex retirement decisions into more manageable pieces (based on personal circumstances) and providing more focused and relevant information to investors would result in more effort and care expended on retirement decisions.

Disappearing women: Why do women leave senior roles in finance?:

Abstract: If Finance companies are keen to increase the number of senior women, understanding why they leave is important. Interviews with 27 women provided deeper understanding of the organisational culture facing women working at senior levels in Finance, as well as insights into the decision to leave. Various cultural aspects can cause frustration – some relate to working in Finance in general, while some relate to issues impacting women. The decision to leave appears to be a combination of frustration, change and choice. Nearly every woman had frustration with her job, but this alone was rarely enough to trigger a decision to leave. This tended to be at a time when the woman was undergoing some form of change (in personal circumstances or seeking change in her life) at which time she considered her options. Choice was also important. It seems women have choice to leave a senior role and take a lower paying one, or one with more flexibility – or even not to work at all.

Masters of the Universe1: What top finance academics say about the ‘state of the field’

Abstract: Through the lens of systems theory, this paper examines contemporary research practices in the academic field of finance. The aim is to establish a benchmark for the ‘state of the field’ in the early 21st century in order to stimulate thinking and challenge the field to open debate about current research practices: what they are, what maintains them, and how they might evolve.

Exploring cultural inclusion: Perspectives from a community arts organisation:

Abstract: Using focus group interviews and individual stories of participants from secondary data, we illuminate the role of Multicultural Arts Victoria (MAV) in Australia in how it promotes cultural inclusion through programs of social and civic service. Our findings confirm the significance of cultural inclusion and the potentially useful role of arts in creating inclusive organisations and communities. We further develop a framework of cultural inclusion in the workplace to provide a holistic understanding of the cultural inclusion process that can lead to the development of inclusive workplaces. As social inclusion is central to Australia’s national identity, this article helps researchers and practitioners to understand how cultural inclusion and inclusive organisational theories collide and complement each other to create inclusive organisations.

Dynamic forecasts of financial distress of Australian firms

Abstract: Dynamic forecasts of financial distress have received far less attention than static forecasts, particularly in Australia. This study, therefore, investigates dynamic probability forecasts for Australian firms. Novel features of the modelling are the use of time-varying variables in forecasts from a Cox model. Not only is this one of relatively few studies to apply dynamic variables in forecasting financial distress, but to the authors’ knowledge it is the first to provide forecasts of survival probabilities using the Cox model with time-varying variables. Forecast accuracy is evaluated using receiver operating characteristics curves and the Brier Score. It was found that the dynamic model had superior predictive power, in out-of-sample forecasts, to the traditional Cox model and to the logit model.

Personal and social impacts of significant financial loss

Abstract: This paper examines the impact on individuals who suffer significant financial loss. The collapse of Storm Financial is used as a qualitative case study to investigate such impacts, based on elements of grounded theory and narrative analysis. Significant financial loss is devastating, with an individual’s emotional wellbeing a primary casualty, and mental health also vulnerable. One’s social world is impacted, including relationships with family and friends, engagement in community activities and familial/cultural roles. Financial victims perceive a sense of judgement from society about their losses, further exacerbating emotive and social impacts. These impacts demonstrate that significant vulnerability exists when encouraging self-sufficiency in retirement.

The microstructure of Australian takeover announcements

Abstract: Using several microstructure variables, this study provides an intra-day examination of aggressive trading around Australian takeover announcements. We conduct this analysis for both target and bidding firms. We examine aggressive trading (i.e. by those who initiate the trade) using the abnormal behaviour of returns, trading volume, volatility and time-weighted spreads and depth. In addition, we develop a novel profit/loss measure (PLM) based on trade initiation and provide new evidence using the recently developed volume-synchronised probability of informed trading (VPIN) metric. In a univariate setting, these measures provide evidence of increased aggressive trading in Australian target firms. Further, after controlling for several microstructure variables, multivariate analysis reveals the presence of abnormally elevated time-weighted spreads prior to the announcement date for target firms. We show that VPIN is significantly elevated for target firms, especially in the four days prior to the takeover a...

Which governance characteristics affect the incidence of divestitures in Australia

Abstract: Event studies indicate that divestitures create shareholder value. However, managers are generally disinclined to execute a divestiture due to their inherent preferences for growing the firm’s assets. Governance structures can play a significant role in restraining this agency conflict. Using a sample of divestitures carried out by Australian firms over a recent 10-year period, we find that board compensation and ownership concentration increase the likelihood of a divestiture. In addition, board compensation has a stronger effect in firms that are more likely to divest, while larger boards inhibit divestitures in firms that are less likely to divest. Our analysis involves a propensity score matching method. We show that poor matching can lead to large biases and inconsistencies.

Does governance structure influence pension fund fees and costs? An examination of Australian not-for-profit superannuation funds

Abstract: The importance of managed fund governance structures has become apparent in recent years. Looking at the Australian not-for-profit pension funds, we find correlations between funds’ internal govern...

My boat my identity: Investment in tuna fishing in Viet Nam:

Abstract: This research examines the issue of boat development, from the perspective of boatowners in the context of the Vietnamese tuna longline commercial fishery. In particular, it seeks to better understand fishers’ decision to acquire their first fishing boat. This research employed a constructivist grounded theory method, using qualitative data generated from interviews, observation and collected documents. The study finds that fishers’ decision to acquire their first fishing boat is, primarily, a commitment to work long term in the fishing occupation, to maintain and develop one’s identity as a fisher. Aside from that, fishers are also motivated by the financial and non-financial rewards of fishing, particularly with tuna as a highly prized export. Non-financial rewards refer to aspects of job satisfaction such as being one’s own boss, thrill of the activity, the social company and passion for the sea.

The determinants behind Chinese companies’ incremental equity issue decisions:

Abstract: This paper studies the determinants behind Chinese companies’ decisions to make seasoned equity offerings (SEO). Probit regressions are employed and a Monte Carlo simulation method is used to confirm the non-existence of the spurious correlation problem found in traditional models of capital structure. Evidence is found to confirm the privilege of state-controlled enterprises to access equity. A corporate governance indicator based on the completion of the Split Share Structure Reform is also introduced. However, no evidence to support the importance of corporate governance is found. The results of this study imply that in a country where the state dominates the intermediation of capital, investors and thus companies are less sensitive to the quality of corporate governance. Different factors have been observed to affect Chinese firms’ SEO decisions prior to and post the Split Share Structure Reform. The influence from the state has also been weakened after the reform, particularly after the global financ...

The Masters of Finance: Ideas from the field

Abstract: This comment illustrates how direct empirical study, that is, field observation and participation by academics, contributed to the understanding of practice and the early development of modern fina...

The investment horizon and asset pricing models

Abstract: The Life Cycle Hypothesis suggests that the primary motivation for saving is to accumulate resources in order to fund retirement. This suggests that investors have heterogeneous investment horizons, yet many tests of the CAPM assume homogeneous horizons. This paper estimates a time varying heterogeneous investment horizon using over 200 years of demographic data. We test the CAPM and its assumption that the Equity Risk Premium is positive using our estimated investment horizon. We conclude that the CAPM is not violated when tested over a horizon that more accurately reflects investor behavior.

Evidence of speculation in world oil prices

Abstract: It has recently been suggested that financial speculation is now playing an important role in daily price movements of global oil prices. This raises the question: what are important drivers of price changes given this new speculative regime? We identify new factors of the oil market related to speculation by fitting subset vector autoregression models with exogenous variables (SubVARX) and rank them by importance. Further, to account for model uncertainty and to obtain robust parameter estimation in this study, we apply a bootstrap model selection procedure. We find that certain speculative factors explain a large portion of the variation in oil price for the given data set.

Individual investor portfolio performance in retirement savings accounts

Abstract: We analyse the investment performance of a large sample of individuals investing in discretionary superannuation products offered by a large Australian financial institution. We do not find gender ...

Initial validation of the support mobilization for work stressors inventory

Abstract: Although there has been significant research into coping with work stress, support mobilization has been largely overlooked. When workplace stressors adversely influence employees, they often turn to colleagues and supervisors for feedback and support. This article outlines the development of a new multidimensional measure of support mobilization: the Support Mobilization for Work Stressors (SMWS) inventory. Two studies revealed that the SMWS inventory shows evidence of reliability, factor structure dimensionality and replication across samples, convergent and discriminant validity with a perceived available support measure, and criterion-related validity with organizational outcomes. The 12-item inventory is rated with reference to three sources of support (supervisor, colleagues, non-work people), and assesses how often an employee has approached each of those sources to obtain four supportive functions (emotional, informational, instrumental, appraisal); thus producing 12 distinct support mobilization constructs.

The impact of analyst-investor disagreement on the cross-section of implied cost of capital

Abstract: Implied cost of capital estimates are typically calculated using analysts’ forecasts as proxies for the market’s earnings expectations. We examine the case where deviations between investors’ expectations and analysts’ beliefs, as manifested by analysts’ recommendations, cause predictable variation in implied cost of capital. We find that stocks recommended by analysts as Buy or Strong Buy have, ceteris paribus, higher implied cost of capital than stocks recommended as Underperform or Sell, and that the effect is more clearly pronounced in stocks that have been downgraded. We attribute the effect to differential expectations between analysts and investors regarding future profitability, rather than differential expectations regarding systematic risk. We demonstrate that adjusting analysts’ earnings forecasts in line with the market’s earnings expectations largely eliminates the observed variation, indicating that such corrective mechanisms could and should be incorporated in the estimation of implied cost...

Should stock market return forecasts be conditioned on politics

Abstract: This paper examines whether stock market returns forecasts should take account of the political party in power by re-examining the prior literature to demonstrate that US stock market political regime differences are neither significant nor long-lasting. We demonstrate that the presidential regime dummy variable used in prior studies is highly auto-correlated, thus potentially violating the ordinary least squares assumption of independently distributed regression errors. Simulation and bootstrap analyses are used to demonstrate that prior findings of higher returns and lower risk under Democratic presidencies are less than would be expected by chance, once account is taken of the persistence properties of the presidential regime dummy variable used in prior studies. Theoretical considerations are also used to explain why presidential regime differences are unlikely to persist, thus further reconciling the paper's findings with prior studies.

Style factor timing: An application to the portfolio holdings of US fund managers

Abstract: This study develops a style rotation model based on quarterly forecasts of style factor (SF) returns, across four style categories, generated using market and macroeconomic data. The prescriptions from this model are tested on a sample of US active equity mutual funds’ portfolio holdings. An annual buy-and-hold style timing strategy investing in the factor with the highest forecast return each quarter achieves an average annual excess return of 7.26%, significant at the 1% level during 1981–2011. However, a fund-of-fund (FoF) timing strategy investing in the funds with the greatest exposure (i.e. the preferred funds) to the style predicted to outperform over the following year does not generate statistically significant Daniel, Grinblatt, Titman and Wermers (DGTW)-adjusted performance. The lack of performance is primarily because the long-only funds are by nature unable to fully exploit the long-short SF returns. This highlights the issue of using long-short portfolio returns, particularly when evaluating...

Conditional equity risk premia and realized variance jump risk

Abstract: This study explores the relationship between realized variance jump risk and conditional equity risk premium. Using high frequency records of the Standard & Poor’s 500 index, we construct a realized variance measure and estimate its jump component using a Heterogeneous Autoregressive model augmented by a jump component. We find strong evidence that the realized variance jump risk measure significantly relates to excess stock market returns in-sample and out-of-sample from 1998 to 2010. Further, the predictive power of the variance jump remains both statistically and economically significant after controlling for commonly-used return predictors, and is also independent from variance risk premium and price jump risk. Calibration-based evidence is also consistent with our empirical findings.