The relationship between corporate social performance and earnings management

This study assesses the relationship between corporate social performance (CSP) and earnings management. Based on a sample of 109 Canadian companies drawn from the Michael Jantzi Research Associates – Canadian Social Investment Database for the years 2004 and 2005, our findings corroborate the multiple objectives hypothesis suggesting that the level of CSP is positively associated with earnings management. Using individual measures of CSP, we find a positive association between firm's CSP ratings related to environment and employees, and the earnings management activities. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

Fuzzy evaluation of risk management profiles disclosed in corporate annual reports

The most common measures of risk have traditionally been based on quantitative financial and accounting information. However, new information on risk management disclosed in companies' annual reports is generally qualitative or linguistic. As such, exploitation by decision makers becomes difficult. In this study, a fuzzy analysis approach is applied to risk information disclosed by 217 firms listed on the Toronto Stock Exchange. The results provide some evidence that these fuzzy measures are reasonable proxies for traditional financial and accounting measures. They also show that fuzzy measures can predict a significant amount of systematic risk. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

Ethics and Disclosure: A Study of the Financial Performance of Firms in the Seasoned Equity Offerings Market

In this article, we examine the association between ethics and disclosure and the impact of this association on the long-term, post-issue performance of seasoned equity offerings (SEOs). We argue that firms with extensive disclosure are less likely to face information problems, and more likely to lead to an active shareholder monitoring, and therefore, engage in fewer unethical activities, such as aggressive earnings manipulation, and have better long-term, post-issue performance. Consistent with these predictions, this study presents evidence that disclosure is negatively related to unethical earnings manipulation and positively associated with long-term, post-issue performance. In particular, we find that long-term, post-issue SEO underperformance is significantly less for firms with extensive disclosure and conservative earnings management than firms with less disclosure and aggressive earnings management. We interpret this evidence to mean that over the long run, the capital market values ethical financial reporting and corporate efforts to incorporate social responsibility into their decision-making processes, for example, by enhancing information transparency through voluntary disclosure.      

The Determinants of Outcome in UK Take–over Bids

In this paper we have investigated the determinants of the outcome of 238 friendly and hostile take–over bids that occurred in the UK during the 1980s. We also use our model for prediction purposes and in order to map the effects of a variety of independent variables on the probability of the bid being successful. Our main results can be summarised as follows. First, target management resistance and the wealth effect of a bid are key determinants of the outcome of a bid. Second, we find limited evidence to suggest that share ownership by the bidding company and by target directors also contributes significantly to bid outcome. In the latter case we find a non–linear relationship consistent with the argument that when director holdings are low the bid is discouraged but when they are high the bid is encouraged. Third, our model is good at predicting outcome for all bids but weak at predicting the outcome of hostile bids on their own.     

The Link Between Small Business Governance and Performance: The Case of the Ghanaian SME Sector

ABSTRACT

The present study set out to examine corporate governance practices of SMEs in Ghana and whether there is any linkage between these governance practices and financial performance. We employed two levels of interaction to achieve our objectives: The first is an interview for a general understanding of governance issues in the SME sector and the subsequent design of a questionnaire for an exploration of the linkages between governance issues and firm financial performance by employing a linear model. The study reveals that governance structures in SMEs are jointly influenced by credit providers and business ethical considerations. The regression results show that board size, size of audit committees, corporate ethics and the proportion of outsiders on the audit committees have negative impact on financial performance while independence of the board and the presence of audit committees enhance firms' financial performance. The findings have some policy implications in that it shows that exporting SMEs are relatively profitable. It is recommended that in an attempt to promote exports, the legal and regulatory environment should be conducive for these firms.     

An event study analysis of outward foreign direct investment: the case of Greece

The purpose of this article is twofold. Firstly, by applying the event study methodology, it provides detailed and updated evidence on the value generating effect of different modes of foreign direct investment (FDI) entry. Secondly, this is the first paper to empirically evaluate the impact of FDI on the stock returns of Greek firms participating in the Athens Stock Exchange (ASE). In the case of Greece, the cross‐section analysis revealed that successful outward FDI projects tend to be located in developed countries, performed in a high‐technology sector and linked to horizontal integration.     

Valuation effects of recent corporate dividend and income trust distribution tax changes

We analyze the valuation effects of the Canadian federal government's announcement on November 23, 2005 of a reduction in the taxation of corporate dividends and the announcement on October 31, 2006 of a plan to eliminate the tax‐deductibility of income trust distributions. Though high dividend stocks and income trusts reacted positively to the 2005 announcement, the abnormal returns were greater for income trusts. Conversely, both securities reacted negatively to the 2006 announcement with the decline bigger for income trusts. The larger price reactions of income trusts and the lack of statistical significance in the cross‐sectional tests of the abnormal returns suggest that the popularity of income trusts in Canada was mostly driven by their favourable income tax status. The implications of these findings for scholarship and for practice are discussed. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

The Survival of Family Firms: The Importance of Control and Family Ties

The aim of this article is to analyze the survival patterns of a group of family firms which have already spent at least 25 years in the market. To this end, we use the Kaplan–Meier product limit estimator supplemented with qualitative information gathered by direct observation and discussions with entrepreneurs. The main findings are that small family firms which have reached their 30th year in the market face a very high risk of sudden exit, increasing with firm age. Further control carried out by means of interviews with entrepreneurs identifies problems connected with succession as one of the main causes of the decision to close down.     

Credibility of corporate announcements and market reaction: evidence from Canadian share repurchase programs

Do market participants evaluate the credibility of a firm's share repurchase announcement based on the firm's share repurchase history? Using a sample of 1,507 share repurchase programs for firms listed on the Toronto Stock Exchange from 1994 to 2005, we find that 69% of firms fail to acquire the target number of shares specified at announcement and many firms fail to repurchase any shares. We develop credibility indices and find a positive relationship between current announcement abnormal returns and completion credibility of previous announcements. We conclude that the market prices completion credibility of past share repurchase announcements in reacting to current repurchase announcements. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

Discretionary power of project managers in knowledge‐intensive firms and gender issues

The scarcity of women among highly qualified professionals in business‐to‐business information and communication technologies (ICT) in Europe and in North America has been noted as recently as the late 1990s (Panteli, Stack, Atkinson, & Ramsay, 1999). The organization and management of work in such firms is typically project‐based. This has many consequences, including: long working hours with fierce resistance to any reduction, unpaid overtime, high management expectations of employee flexibility to meet unanticipated client demands, and the need for employees to negotiate flexible work arrangements on a case‐by‐case basis with a project manager who often has much discretion on whether to accommodate such requests. We found that women are particularly disadvantaged in such a system, which could partly explain their under‐representation in such jobs. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

On the Benefits of Withholding Knowledge in Organizations

Transferring knowledge to an agent makes him more successful or productive, which is beneficial for the principal. However, knowledge transfer also increases the agent’s outside option. I identify two reasons for withholding knowledge — to reduce labor costs within a principal–agent relationship, and to weaken the agent in case of a separation. Moreover, the role of synergy is discussed both for building up a principal–agent relationship and for transferring knowledge. While synergy is decisive for knowledge transfer, cooperation between the principal and agent may even take place in the absence of synergy. Furthermore, I analyze whether the principal is more likely to transfer knowledge to a more able or to a less able agent. Finally, the advantages and disadvantages of a noncompetition clause are briefly discussed.     

Excess control and the risk of corporate expropriation: Canadian evidence

Corporate governance in Canada was examined by looking at the ultimate ownership structure of a large sample of publicly traded firms. Results suggest that small investors in Canada are vulnerable to corporate expropriation in large firms. Despite the similarities in institutional indexes, Canada displays different patterns of ownership structure than sister Anglo‐Saxon countries (the U.S. and the U.K). More importantly, results suggest that excess control drives expropriation over and above the typical Jensen type of agency problems that are attributable to regular separation of ownership and control. Equally important, firms headquartered in Quebec appear to be undervalued vis‐à‐vis firms headquartered in the rest of Canada. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

Consequences of the halloween nightmare: analysis of investorsõ response to an overnight tax legislation change in the canadian income trust sector

On October 31, 2006, the Canadian federal government announced increased taxation of income trusts, beginning in 2011. Using discounted cash flow analysis, we investigated timing of the market adjustment. Energy, utility, and business trust prices dropped by predicted amounts, indicating a rational market response. Following the announcement, however, affected sectors reacted differently: Energy and utility trusts were more likely to merge within their sectors while business trusts became private equity targets. The income trust case is a classic example of a natural event, and our results underscore the efficiency of Canadian capital markets. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.     

The Costs of Arbitrage and Futures Market Trading Activity

Abstract Standardizing a futures contract’s specifications to enhance its transfer-ability is problematic for any commodity whose cash market adopts relational contracting procedures. Standardization implies the contract’s value cannot be completely determined by competitive arbitrage order flow, inhibiting the market’s price discovery function, and leaving the futures price susceptible to manipulation. These effects may result in the market’s failure. The model, based on the theory of storage, predicts that contracts with a higher spread-open position price volatility are more likely to contain a range of arbitrage indeterminacy, hence to experience difficulties in sustaining trading. The prediction is supported in an empirical examination of 104 US futures markets. The range of indeterminacy also increases the informational requirements of spread traders, reducing the effectiveness of spread arbitrage in maintaining the equilibrium intertemporal futures pricing relationship. Detailed evidence from 15 US contract markets demonstrates spread arbitrage is less effective in contract markets which subsequently fail.     

The influence of information communications technology (ICT) on cash management and financial department performance: An explanatory model

We delineated the extent to which various facets of information communications technology (ICT) are used and are perceived as useful by treasury managers, focusing on three indicators of financial department performance: cost savings, improvements in the quality of the information, and enhancements in the use of scenario simulations for decision making. Specifically, we examined the relationship between ICT use in cash management functions within financial departments, perceptions of the importance of cash management to treasury managers, and their perceptions of the usefulness of ICT to financial department performance. The theoretical and applied implications of these findings are discussed. Copyright © 2009 ASAC. Published by John Wiley & Sons, Ltd.     

Canadian takeover announcements and the job security of top managers

This study measures the turnover rate of top managers (Chief Executive Officers or Presidents) in acquisition targets following the public announcements of takeovers in Canada. Turnover rates following the announcements of completed and unsuccessful takeover attempts did not differ from each other but were higher than the norm for CEOs from a control group of nontarget firms. The turnover rate was particularly high for widely‐held firms and negatively correlated with the preannouncement performance of the targets. Overall, results suggest that a major objective of takeovers in Canada is to reduce management failings, inefficiency, and agency costs. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

Vertical Relationships in the Automotive Industry: Do They Matter?

In this note we examine how vertical relationships are related to the efficiency of the operations in the automotive production chain. We first provide an overview of the nature of supplier arrangements by comparing current practices in the countries Japan, US, and Germany. Current best practices show that vertical linkages in the automotive industry have shifted away from simple market transactions and now involve closer long-term interactions coupled however with subtle incentive elements. We outline the economic issues which are present in vertical relationships and include a brief account of differing theoretical perspectives. Then, we use a refined methodology to measure productivity at the industry level for the supplier industries automotive parts and metalworking and for the final assembly industry. It turns out that Japanese industries achieve the highest productivity level at the supplier and at the assembly level. We interpret the empirical results and relate the differences in vertical arrangemen s with the efficiency of both parts in the relation.     

An examination of gender influences in career mentoring

This study draws on the Theory of Planned Behaviour to examine the role of gender in the decision to be mentored. Contrary to expectations, men and women employ similar decision criteria in the decision to seek a mentor. The primary driver for seeking a mentor was to obtain psychosocial support, including personal support, acceptance, having a confidant, being trusted and friendship. Men were more likely than women to seek a mentor when they valued increased autonomy. The implications of the findings for protégés, mentors and career development professionals are noted. Copyright © 2009 ASAC. Published by John Wiley & Sons, Ltd.     

Optimal vs satisfactory transparency: The impact of global macroeconomic fluctuations on corporate competitiveness

Being able to separate temporary global macroeconomic influences – caused by fluctuations in exchange rates, interest rates and inflation – from intrinsic performance – related to a superior product, production process or management – is crucial to assessing the development of a firm’s competiveness. Against that background, this paper analyzes institutions’ role in making firms supply outside shareholders with relevant information corresponding to satisfactory transparency from the shareholder perspective. Based on a sample of the 100 largest public European firms, it is found that no firm provided information to a level deemed satisfactory by the outside shareholder. One explanation may be that optimal transparency for the firm does not equal satisfactory transparency for the outside shareholder. However, the implementation of IFRS/IAS 1 in the EU as of 2005 and a company’s international cross-listing activities exhibit associations with a better supply of information and a narrowing of the gap. Shareholders in the Anglo-Saxon corporate governance system are provided with more relevant information than those in other corporate governance systems. The paper adds to the literature on the role of institutions in international corporate governance, with a particular focus on information asymmetries in an international business context.     

Thirty years of international business scholarship in Canada

Upon the invitation of the Hemant Merchant (Editor, Strategic Management and International Business Division) I have reviewed the development of international business (IB) scholarship in Canada and related this to my own research conducted while I was a faculty member at the University of Winnipeg 1970–79, Concordia University 1979–80, Dalhousie University 1980–87, and the University of Toronto 1987–98. I have developed a retrospective analysis of four key thematic areas of research that are specifically relevant in a Canadian context. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.