Regulation of Corporate Governance: Will it Improve Corporate Performance?

In 1995, the New South Wales Court of Appeal handed down a significant judgment on directors' duties in Daniels v Anderson¹ (the AWA case), following the landmark decision of Rogers CJ (Comm. D.)². In the same year, the Australian Stock Exchange introduced a listing rule under which listed Australian companies will for the first time be required to disclose their corporate governance practices. This article places the important decision in AWA and the ASX's corporate governance rule in the context of recent research in the United States on whether there is a link between corporate governance and corporate performance.     

Implications for the Conceptual Framework Arising From Accounting for Financial Instruments

This article describes some of the issues faced by standard setters in developing guidance on accounting for financial instruments and the implications these issues have for the conceptual framework (CF). The objective is to outline issues, not necessarily to resolve them, and to consider the implications they have for further developing the conceptual framework.
Given the current trend of harmonization and convergence of accounting practice towards international standards, it seems reasonable to assume that any policy implications will be most relevant to the CF inherited by the International Accounting Standards Board (IASB). ¹ Unless otherwise stated, references will be made to International Accounting Standards (IAS).     

FINANCING NETWORK ORGANIZATIONS

Most large firms are not large, single station facilities… Large size is the result of joining a series of stations within a single administrative entity…The interfaces between stations could instead be mediated by market exchanges.
—Oliver Williamson ¹ —     

The Financial Crisis and the Value‐relevance of Recognised Deferred Tax Assets

The objective of this study is to consider if the value‐relevance of recognised deferred tax assets, which often represent unused tax losses, was affected by the financial crisis. A regression analysis of a sample of Australian and United Kingdom firms reveals that the value‐relevance of recognised deferred tax assets was affected by the financial crisis. However, the impact of the financial crisis differed between the sample countries. The study shows that a plausible explanation for this difference might be found in the tax law of the two countries. Findings of this paper will be of interest to regulators and standard setters, as they highlight how interaction between accounting requirements and tax law affects the relevance of accounting and tax information.     

The relative and incremental value relevance of goodwill before and after SFAS No. 142

We explore the value relevance of goodwill against two benchmarks: other accounting information and long-lived tangible assets. Prior research suggests that fair value estimates for goodwill must be inferred from other available information because of the nature of goodwill, including its intangibility. Such inferences are highly discretionary and may limit the usefulness of reported goodwill estimates. Because Statement of Financial Accounting Standards (SFAS) No. 142 relies exclusively on fair value estimates to subsequently measure goodwill, reported values considering management’s increased discretion may be less reliable and less value relevant when presented in conjunction with other accounting information. However, the subsequent accounting measurement for goodwill is not dissimilar from the subsequent measurement for long-lived tangible assets, which are also subject to impairment. In general, impairment measurement is subjective; management may have greater insight, even in the presence of management incentives and other accounting information, that may help confirm or disconfirm investors’ own goodwill estimates. Using other accounting information and long-lived tangible assets as benchmarks for the value relevance of goodwill, we find that reported goodwill provides greater value relevance relative to other accounting information after SFAS 142 and that the difference between the value relevance of goodwill and other long-lived tangible assets is also significantly greater following SFAS 142.     

公允价值会计实践的理论透视

本文对影响公允价值会计实践的因素进行了理论分析,认为历史成本会计对不稳定的经营环境的不适应性,是公允价值会计实践的根本诱因;决策有用观的财务报告目标,为公允价值会计实践创造了适宜的环境;对经济学收益计量的追求,为公允价值会计实践提供了内在的动力;而相关性与可靠性的权衡,则构成了公允价值会计实践的关键限制。因此,为相关性和可靠性的权衡制定明确的标准,并对决策有用会计信息质量特征进行反思和重构,是推动公允价值会计实践的根本要求和有效途径。     

Measuring Value Relevance in a (Possibly) Inefficient Market

An interesting question in assessing value relevance of accounting variables is whether measures of value relevance are materially affected by market inefficiencies. We explore this question in two steps: First, we analytically examine the impact of market inefficiencies on the estimation of coefficients in value relevance regressions and derive a procedure that corrects potential biases caused by such inefficiencies. The procedure adjusts contemporaneous stock prices for future risk adjusted price changes, and yields value relevance coefficient estimates that capture both contemporaneous and delayed market reactions. Second, we apply this procedure to three types of studies that have attracted much attention in the accounting literature: 1) the value relevance of earnings and book values; 2) the value relevance of residual income value estimates; and 3) the value relevance of accruals and cash flows. We compare coefficient estimates obtained from conventional value relevance regressions with those from regressions employing our adjustment procedure, and find statistically significant differences in both level and return regression coefficient estimates. The magnitude of differences in coefficient estimates for return regressions is large enough to affect economic inferences. We find that coefficients of lagged price deflated residual income value estimates move significantly closer toward a predicted value of one implying a meaningful reduction of bias. Last, we find that cash flows now have significantly larger coefficient estimates than accruals consistent with their greater persistence.     

Raising Finance and Firms' Corporate Reporting Policies

The major purpose of a corporate annual report is to convey information about the company's affairs to outside parties. The information can be used both to monitor agency relationships (Jensen and Meckling [25]; Watts [32]) and to provide inputs into user decision models (e.g. Altman [3]). Until recently, however, very little research had been conducted into annual reports in the U.K. and hence little was known about their effectiveness. This has been remedied, to some extent, in the last few years and there is now a growing body of literature relating to annual reports. For example, the major professional British accounting bodies commissioned a study to examine'the scope and aims of published financial reports in the light of modern needs and conditions'. This resulted in the publication of The Corporate Report (ASSC [1]), a document which recommended a number of radical changes. Other studies have investigated the degree of understanding of annual reports by private shareholders (Lee and Tweedie [26]), the degree of consensus about the usefulness of annual report data (Firth [21]), the actual degree of disclosure by British companies (Firth [22, 23]), and the impact of accounting information on share prices (see Firth [20]).¹ The purpose of this paper is to add to the literature by reporting the results of an empirical study which examined one aspect of the corporate reporting policies of British firms, namely the changes in the quality and extent of voluntary financial disclosure when raising finance in the stock market.     

Do Better‐Governed Australian Firms Make More Informative Disclosures?

Abstract:   We investigate whether and if so, how, corporate governance 'quality' ¹ is related to the information flows from a company and how the share market and its agents respond. Specifically, we study links between the 'quality' of a firm's corporate governance (CGQ) and the informativeness of its disclosures. We employ six indicators of informativeness. They include document counts, properties of analysts' forecasts and a 'timeliness' metric, in the spirit of Ball and Brown (1968) , that reflects the average speed of price discovery throughout the year. Our results suggest the answer to our question is 'Yes': better‐governed firms do make more informative disclosures.     

经济增加值与企业价值的相关性研究

论文以我国电力行业的上市公司为研究对象,采用实证分析的方法,以代表企业价值的每股股票价格为因变量,以每股经济增加值、每股净资产、每股收益、权益净利率、总资产利润率和营业收入增长率为自变量,对56家电力行业上市公司2010年和2011年的数据进行逐步回归分析,逐步回归分析的结果表明：EVA与企业价值之间存在着较强的相关性,EVA指标可以用于对企业价值的衡量,指导企业进行价值管理。     

Relative Value Relevance of the Successful Efforts and Full Cost Accounting Methods in the Oil and Gas Industry

This paper examines the value relevance of two alternative accounting methods for exploration and development (E&D) expenditures for oil and gas firms. I find that full cost (FC) accounting data is more value-relevant than successful efforts (SE) accounting data. Further analysis reveals that the smooth earnings provided by the FC method contributes to the higher value relevance of the FC method. This study concludes that a policy of full capitalization of expenditures with uncertain future economic benefits better summarizes information relevant to investors relative to a policy of partial capitalization.     

The impact of different goodwill accounting methods on stock prices: A comparison of amortization and impairment-only methodologies

In March 2020, the IASB issued a discussion paper – ‘Business Combinations – Disclosures, Goodwill and Impairment’ – which discussed, inter alia, whether to introduce a sort of counterreformation of IAS 36 that might lead to the reintroduction of goodwill amortization. Among other things, the IASB, leveraging key findings from academic research, questioned a) the disclosure provided by entities applying IFRS 3 requirements and b) the timing of impairment write-downs and their overal¹l magnitude.The main goal of this study, focusing on a large sample of European listed companies since the adoption of IAS in 2005, is to test the value relevance of goodwill under the current accounting framework and the alternative hypothesis of an amortization regime.Our findings show that the information provided by listed companies to market investors under the current accounting regime (verification at least annually of the recoverability of the value of the goodwill carrying amount through the impairment test) – the level of goodwill before and post impairment, as well as goodwill write downs – is value relevant and contributes to explain the level of the market to tangible book value multiple. On the contrary, simulating the alternative accounting scenario of goodwill amortization, we found that the information conveyed to market investor would not be value relevant, with the amortization itself added back to the multiple. The results support the current accounting framework and indicate that the best way to improve goodwill accounting is by enforcing present rules.This study aims to provide a multidimensional contribution to the current debate within the IASB, leveraging the largest database in Europe.     

The impact of socio-economic accounting statements on the investment decision: An empirical study

In this experiment, alternative disclosures of socio-economic accounting information, namely the abatement costs of pollution, were investigated as accounting techniques which may influence the investment decision of potential users. The theoretical rationale stemming from the linguistic relativity paradigm in accounting was that in general the accounting techniques may tend to facilitate or render more difficult various (nonlinguistic) managerial behaviors on the part of the users, and that in this particular context the investment decision effects from different professional groups using alternative socio-economic information will be different. The findings attest to the general relevance of socio-economic accounting information for the bankers under any investment strategy, and for the accountants only under an investment strategy focusing on capital gains.     

Mandatory Adoption of IASB Standards: Value Relevance and Country-Specific Factors

The objective of this study is to investigate if the value relevance of European-listed companies increased after the mandatory application of International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) and how the value relevance of accounting information prepared under IAS/IFRS is shaped by the specific factors of the country in which companies are domiciled. Results show that the value relevance of financial information during the period companies applied mandatory IAS/IFRS is higher than for the period during which they applied local accounting standards. We also found that countries where accounting and tax are clearly separated show more relevant accounting information. Finally, we found that companies from countries with more legal and public enforcement mechanisms disclose less relevant accounting information under IAS/IFRS.     

DURATION MOMENTS AND YIELD CURVE MOVEMENTS

In this paper we will analyze the relationship between the value and duration moments of a cash flow and movements in the yield curve. We will show that for changes in the yield curve which can be related to tⁿ , the 1st order changes in the net present value of a cash flow are linearly dependent on the n + lth duration moments, and that the 2nd order changes are dependent on the sum of duration moments of order 2 n + 1 and 2 n + 2. We will use this relationship to tilt tracking portfolios so as to protect them against specific changes in the yield curve.     

会计信息的信贷决策有用性:基于所有权制度制约的研究

本文在我国制度背景下以两阶Logit回归模型考察我国会计信息的信贷决策有用性。模型包括银行信贷决策的会计财务指标,也包括所有权性质等制度因素。结果表明,会计信息可以降低信贷决策中信息不对称程度,但是信贷决策有用性在所有权制度层面被削弱,主要源于企业与银行均为政府终极所有时银行监督缺位。银行信贷决策中是否使用会计信息不单单是会计信息质量问题,也受所有权制度约束。     

The valuation properties of earnings and book values reported under IAS,domestic GAAP and U.S. GAAP: Evidence from China,Hong Kong,Japan, Korea and Singapore

This paper examines whether earnings or book value is the dominant valuation accounting measure for companies reporting under alternative accounting standards — International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS), U.S. Generally Accepted Accounting Principles (U.S. GAAP) or domestic accounting standards of China, Hong Kong, Japan, Korea and Singapore. Our sample consists of domestic firms in the five Asian countries and firms from these countries cross-listed in the United States as American Depositary Receipts (ADRs) from 2002 to 2011. For domestic firms, book value is more informative than earnings for firms from Hong Kong, Singapore, China, Japan and Korea during 2002–2011 although their accounting standards are influenced by different systems. For the ADR sample, book value is more informative than earnings for U.S. GAAP reporters and reconcilers during 2002–2007. However, earnings are more informative than book value for U.S. GAAP reconcilers from China. After 2007, ADRs in our sample from Hong Kong, Japan and Korea continued to file under U.S. GAAP. Some ADRs from China filed under U.S. GAAP and some filed under IFRS. Earnings are more informative than book value for IFRS users; however, book value has higher incremental value relevance than earnings for U.S. GAAP users. We contribute to prior research by providing evidence on the valuation properties based on accounting measures reported under different GAAPs for the Asian countries.     

Designing a U.S. Market for CO2

The United States may soon have a market for carbon. If so, that market will grow out of a cap-and-trade system like the EU's Emissions Trading System for CO₂ or the U.S. Acid Rain Program for SO₂.
This article reviews the historical performance of these two markets, with particular focus on how the flexibility afforded by, as well as restrictions on, the "banking" and borrowing of allowances has affected the evolution of prices. While both markets have generally functioned well, four episodes are used to illustrate the importance of designing the rules to encourage such flexibility.
The 2005 opening of the EU CO₂ market was marked by a surprisingly high price, one that resulted from a delay in institutions with long positions in allowances ("longs") bringing supply to the market.
The 2007 close of the first phase produced a sharp divergence between the spot price at the end of 2007 and the futures price for 2008, reflecting the restriction against carrying over (or "banking") allowances from one phase to the next.
The U.S. SO₂ market's transition to a tighter system in 2000 avoided such a divergence by allowing unlimited banking of allowances into the second phase.
In 2005-2006, the U.S. SO₂ market experienced a surprising price spike attributable to a combination of changing fundamentals and institutional features (notably, the tax treatment of "longs") that undermined the flexibility of the bank.