Volume 10 Number 01
Corporate Governance And Declining Firm Performace
John Evans, Robert Evans and Serena Loh
This research investigates the relationship between corporate governance structures and the decline in firm performance in a sample of Australian firms. Firms experiencing extended periods of financial decline are expected to react to this decline by instigating governance related changes. In particular, the relationship between declining firm performance and executive compensation, board composition, board meeting frequency and insider share ownership is examined.
Contrary to the hypothesised relationship, firms in decline did not generally react through changes to insider ownership levels, numbers of outside directors and CEO pay levels. Firms did, however, respond to poor performance by significantly increasing board meeting frequency.
Keywords: corporate governance; executive compensation; Australia.
Corporate Treasury Governance: The Trade-Off Between Knowledge Transfer Costs And Agency Costs
Mary Sweeney
Organisations differ in their exposure to knowledge transfer costs, arising through bounded rationality, and agency costs, arising through opportunism. The risk-reward trade-off is affected by the size of the organisation and their exposure to currency risk, interest rate risk, liquidity risk, commodity price risk and operating risk. This paper develops a theoretical treasury model to explain the trade-off between knowledge transfer costs and agency costs within treasury functions. Guidance on how the treasury model can be empirically tested is provided in the paper. Research in this area will assist organisations when deciding upon an appropriate treasury governance structure.
Keywords: treasury governance, agency costs, opportunism, bounded rationality, asset specificity, knowledge transfer costs.
Governance Disclosures And Firm Characteristics Of Listed Australian Mining Companies
Lisa Cullen and Theo Christopher
This study examined the incentives motivating listed Australian mining companies to provide governance information in their annual reports after the introduction of listing rule 4.10.3 which became effective on or after 30 June 1996. Adopting political cost theory five testable hypotheses were developed. It was hypothesised that the disclosure of governance information would be positively associated to the proportion of non-executive directors, gearing, ownership diffusion, Big 6 external auditor and firm size. Governance disclosures were found to be significantly associated with firm size, ownership diffusion, gearing and Big 6 external auditor. The proportion of non-executive directors was not significantly associated with governance disclosure.
Keywords: disclosure, governance, mining
International Joint Ventures In West Africa: Sources Of Funding And Barriers To Finance
Agyenim Boateng, Roger Henderson and Raphael Akamavi
This paper examines the sources of funds and barriers to finance of international joint ventures (IJVs) in West Africa. A sample of 57 IJVs based in Ghana and Nigeria is examined. The findings suggest a pronounced tendency to finance IJVs through equity contributions from the partners and to rely on borrowing and retained profits to finance future growth. The study also finds that size of capital required to form an IJV and the organisational type of the host partner are not independent. Exchange risk, poor infrastructure, political instability and transfer risks are found to be the major barriers to finance of IJVs in Ghana and Nigeria.
Key words: joint ventures; sources of finance; barriers; West Africa
What Makes Superannuation Decisions Difficult?
Marilyn Clark-Murphy, Ingeborg Kristofferson and Paul Gerrans
Australian retirement savings funds are growing. Individuals' retirement savings decision processes are significant for employers and government. This paper looks at retirement savings in Australia and reports on a survey of superannuation fund members who were asked to choose between two fund types. While the amount of choice offered to fund members is rising there is evidence that individuals feel ill-equipped to deal with such decisions. Survey participants were asked what factors made their decision difficult. We present an initial analysis of qualitative data and demographic groupings. Results indicate that gender and age are relevant to the difficulty Australian employees experience with superannuation decisions.
Keywords: investment, decision-making, superannuation, retirement savings, Australia
A Test Of Various Pricing Models Of Options On Australian Bank Bills Futures
David Allen and Irene Chau
This paper applies the Black model, the Asay model the Extended-Vasicek model and the Heath-Jarrow-Morton model, to the pricing of call options on 90-day bank accepted bill futures options using Australian monthly call option data for the year 1996. There has been very little previous empirical work applying these models to Australian data sets and we aim to provide the first comprehensive empirical comparison of their relative effectiveness. Theoretical prices are compared with actual settlement prices to determine the accuracy of the models. Any systematic discrepancies are analysed using a number of methods of analysis. These include graphs of relative and absolute pricing errors in relation to moneyness, time to maturity, volatility, the strike price, and calendar time (reported in appendix). Wilcoxon signed rank tests of relative pricing errors and regression analysis are employed to investigate which model dominates and whether the above factors are driving pricing error. The term structure based models are relatively more effective, the Heath, Jarrow, Morton model dominates, and the regression analysis suggests that pricing errors are systematically related to most of the above factors in the cases of all four models.
Keywords: options; Australian interest rate futures; spot rate models; forward rate models