Discussion of ‘Is the objectivity of internal audit compromised when the internal audit function is a management training ground?’

This article provides a critique of the Rose, Rose, and Norman (2013) article. It focuses on four issues: (i) whether institutional details have been appropriately captured; (ii) whether experiments are an appropriate method to answer the authors' research question; (iii) whether the authors' hypotheses should predict an interaction; and (iv) whether the authors have relied on the appropriate theory.     

The environment in an ‘information society’: A transition stage towards more sustainable development?

Social scientists and futurists have suggested that societal development is advancing to a novel stage, to an ‘information society’. However, the crucial qualifiers of this ‘new’ society are ambiguous. Furthermore, environmental goals have created new challenges for information society studies. This paper examines the interaction and dynamics between the information society and sustainable development, which most often manifest themselves as competing scientific and socio-political discourses. On the one hand, there is the potential for reducing the stress on the environment: the emergence of information technologies and services can lead to a dematerialisation of production and immaterialisation of consumption. On the other hand, there are risks: positive environmental effects might be overcome by the ‘rebound effect’ caused by excessive economic growth. It is concluded that further theoretical and empirical studies are needed in order to examine the complex and contradictory relationship between the information society and environmental issues.     

Accountability and Transparency in English Local Government: Moving from ‘Matching Parts’ to ‘Awkward Couple’?

Although excessive transparency and accountability demands can have a counterproductive effect on organisational performance (Bovens, 2005), longstanding hierarchical accountability structures to ensure financial conformance in English local government continue to endure. Interestingly however, the previously top‐down regime for performance accountability in English local government has been replaced by bottom‐up mechanisms such as greater transparency and a more open market for public services. Using the framework developed by Hood (2010), this paper will show how such reforms mean that transparency and accountability are moving from being ‘matching parts’ to an ‘awkward couple’, and how this has significant implications for public services.     

Competition in Electricity Supply: Will ‘1998’ Be Worth It?

Starting in 1998, the electricity market in England and Wales will be opened up to full competition, and all consumers will be allowed to choose their electricity supplier. This promises to result in lower prices, but there will be additional transactions costs exceeding £100 million a year for the first five years. Relative to a counterfactual without competition, there are likely to be large transfers from electricity companies (and the coal industry) to consumers, but the companies lose more than consumers gain. This conclusion might be reversed if competitive pressure leads to significant additional cost savings in the future. JEL classification: L94     

Discussion of ‘Strange bedfellows? Voluntary CSR disclosure and politics’

This article discusses the paper by Griffin and Sun (2013). Griffin and Sun (2013) investigate (i) the association between the company individuals and stakeholders political interests and the intensity of voluntary corporate social responsibility (CSR) disclosures, and (ii) investors response to these CSR disclosures. This discussion focuses on issues relating to five key areas of Griffin and Sun (2013), namely, the relationship between political interests and CSR disclosure intensity, the relationship between political interests and investors reactions to CSR disclosure, the political interest proxies employed, sample selection and the empirical analyses.     

How do ‘busy’ and ‘overlap’ directors relate to CEO pay structure and incentives?

We examine how CEO compensation is affected by the presence of busy and overlap directors. We find that CEOs at firms with more busy directors receive greater total pay, fixed salary and equity‐linked pay and exhibit higher pay‐performance (delta) and pay‐risk (vega) sensitivities. Our results also suggest that CEOs at firms with more overlap directors take smaller total pay and equity‐linked pay and reveal lower delta and vega. We further show that the impact of busy and overlap directors on CEO pay is more visible for firms with less complexity and low information acquisition cost.     

Company duplication – plain fraud or a ‘poor man's’ bankruptcy? A case study in the financial distress of small businesses

Two possible solutions to corporate financial distress are traditionally considered: commencing a formal bankruptcy proceeding or arranging an out‐of‐court capital restructuring. Corporate bankruptcy scholarship has largely ignored a third solution occasionally undertaken by small businesses, that is, resorting to self‐help measures. The purpose of this paper is to start filling the gap using a unique case study. The paper describes and analyses an existing phenomenon among small firms in Israel experiencing financial distress – company duplication. A typical scenario unfolds as follows. An entrepreneur who controls the financially distressed Company A registers a new Company B in an attempt to avoid a complete shutdown of her creditors' disturbed business. The assets of Company A are transferred to Company B in what appears to be fraudulent conveyance. Company B serves as a vehicle through which the original business is kept running. If necessary, the entrepreneur will also register Company C and repeat the process. Israeli law regulates company duplication in an ambivalent manner. On the one hand, conventional wisdom considers company duplication to be tantamount to fraud against Company A's unaware creditors. Accordingly, company duplication has been recently denounced by the Israeli Supreme Court as an illegitimate way of conducting business. The Court held that notwithstanding the principle of limited liability, an entrepreneur resorting to company duplication is personally liable to pay any debt of Company A that was not serviced by it. On the other hand, company duplicators do not face criminal charges. To the extent that company duplication is practiced by insolvent entrepreneurs, deterrence is therefore suboptimal, as insolvent duplicators are not sanctioned at all. Against this backdrop, this paper advances two normative arguments. First, a more sympathetic explanation should be considered to account for company duplication. An entrepreneur resorting to company duplication might actually be arranging for a ‘home‐made’ bankruptcy proceeding (i.e. buying time which could help the business establish its viability and regenerate). According to this narrative, the duplication mimics the role of a formal bankruptcy stay on unsecured creditors' collection efforts, thus suggesting that company duplication serves as ‘a poor man's’ bankruptcy proceeding. Second, this new explanation of company duplication, combined with the current level of suboptimal deterrence, mandates a re‐evaluation of this business pattern to assess its relative efficacy. I argue that at least in the Israeli context because of its special features, company duplication should be tolerated with regard to small businesses, assuming that the entrepreneur is not defrauding creditors or attempting to rescue a business that has failed due to economic rather than merely financial factors. To that end, company duplicators should be held personally liable to debts of the duplicated companies and be pursued with criminal sanctions only selectively, as explained in the paper. Copyright © 2011 John Wiley & Sons, Ltd.     

Who selects the ‘right’ directors? An examination of the association between board selection,gender diversity and outcomes

Using a sample of companies from the top 500 listed firms in Australia, we investigate whether the presence of a designated nomination committee and female representation on the nomination committee affect board gender diversity. We also examine whether gender diversity on the board affects firm risk and financial performance. We find that board gender diversity is significantly and positively associated with the presence of a designated nomination committee and that female representation on the nomination committee is a significant explanatory factor of increasing board gender diversity following the release of the 2010 Australian Securities Exchange Corporate Governance Council (ASXCGC) recommendations. Further, our results support the business case for board gender diversity as we find greater gender diversity moderates excessive firm risk which in turn improves firms' financial performance. Our results are robust after correcting for selection bias and controlling for other board, firm and industry characteristics.     

Mickey Mouse and the IDioT principle for assessing research contribution: discussion of ‘Is the relationship between investment and conditional cash flow volatility ambiguous,asymmetric or both?’

Keefe and Tate ( 2013 ) provide both interesting and worthwhile insights into whether, under what circumstances and to what extent cash flow volatility impacts corporate investment. In the current paper, I have two related goals. First, more narrowly, I provide a constructively critical commentary on salient aspects of their empirical strategy, giving particular emphasis to the key drivers of Keefe and Tate's contribution to the literature. Second, illustrated in the context of Keefe and Tate, my broader goal is to give general advice especially aimed at novice researchers on how to make any empirical study more appealing to a critical reader.     

Do section 404 disclosures affect investors' perceptions of information systems reliability and stock price predictions?

This paper examines the impact of Sarbanes–Oxley Act (2002) Section 404 disclosures regarding internal controls over financial reporting on investors' information systems (IS) reliability assessments and stock price predictions. Prior research shows that Section 404 disclosures signal differences in the quality of company financial information. However, research on how Section 404 disclosures impact financial markets shows mixed results. In order for Section 404 information to affect stock prices, users must access that information, assess its implications, and incorporate those implications into their decision processes. We investigate the stages of this process through an experiment using a 10-K filing adapted from an actual company, utilizing process-tracing software to record information access. Two versions of the case were used to manipulate the type of Section 404 opinion, noting effective or ineffective control systems. Results show that professional investors are more likely to access Section 404 information than nonprofessionals. Also, our findings imply that professional investors have a lower baseline expectation of reliability that increases on learning of effective controls, while nonprofessionals have a higher baseline expectation of reliability that declines on learning of ineffective controls. While IS reliability is positively associated with nonprofessionals' stock price predictions, there is no such association for professionals. These findings help explain the mixed results in past archival studies. Prior results on market response to Section 404 information may be due in part to failure to access Section 404 reports, and to the low weighting placed on IS reliability by financial professionals.     

Do ‘Good Governance’ Codes Enhance Financial Accountability? Evidence from Managerial Pay in Dutch Charities

This paper examines the initial impact of a ‘good governance’ code for charitable organisations that was promulgated in the Netherlands in 2005. Data are gathered from publicly available annual reports of 138 charities in the post‐implementation phase of the code (2005–2008). We first examine whether the code altered charities’ governance structures. Next, we investigate managerial pay as a key aspect of discharging financial accountability because prior literature focused on ‘excessive’ compensation. The findings indicate that a strengthened governance structure positively affects the likelihood of disclosing information concerning managerial pay, as well as mitigating managerial pay level.     

Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting*

In this paper, we look for long‐run and short‐run effects of fiscal deficits on economic growth and welfare in a standard endogenous growth model. We show that, under very general hypotheses, the ‘golden rule of public finance’, which allows a government to run public‐investment‐oriented fiscal deficits, leads to a lower balanced‐growth path in the long run, and eventually in the short run, compared with balanced‐budget rules. Welfare effects are more difficult to assess, and depend on the form of the utility function. Our model shows that debt rules such as the golden rule may improve (if the consumption elasticity of substitution is ‘low’) or weaken (if the consumption elasticity of substitution is ‘high’) intertemporal welfare. Consequently, a balanced‐budget rule does not necessarily dominate debt rules from the point of view of welfare, while it does from the point of view of long‐run economic growth.     

Do disclosures of selective access improve market information acquisition fairness? Evidence from company visits in China

Following an exogenous regulation change in China, we examine the impact of company visit disclosures on the fairness of market information acquisition. Before July 2012, company visits to Chinese listed firms were vaguely disclosed in annual reports long after they were conducted. After that, they were disclosed in detail within two trading days of their completion. Market reactions around visits are much stronger and more predictive of firms' future earnings if visits occurred after July 2012 and, thus, were disclosed in a timelier and more detailed manner. The timely disclosure of visit details also improves the forecast accuracy of non-visiting analysts, reduces forecast dispersion among analysts, and weakens the relative information advantages of visiting analysts. Because of this, visits are more concentrated on firms with poorer information environments, larger sizes, and manufacturing firms after July 2012, i.e., firms offering visitors larger potential benefits. In summary, the timely disclosure of visit details improves the fairness of information acquisition and decreases information asymmetry while causing information chilling effects for firms that provide fewer potential benefits to visitors.     

Housing Really Is the Business Cycle: What Survives the Lessons of 2008–09?

The downturn of 2008–09 has confirmed that: (i) housing is the single most critical part of the U.S. business cycle, (ii) the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later, and (iii) the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so. What was different this time was the rapid and substantial decline in home prices.     

Is less information better information? Evidence from the credit rating withdrawal

This paper examines the stock market reaction to two different types of credit rating withdrawals by Moody’s. The first type of withdrawal occurs when a firm stops being rated. This happens, for example, when firms choose to no longer pay for a rating. We find that the stock market reaction depends on the information which remains available. The second type of withdrawal is due to Moody’s policy of removing the issuer rating and keeping the corporate family rating for the same firm. The corporate family rating is usually more favorable than the issuer rating. The paper shows that the removal of the issuer rating leads to positive stock market reaction. We conclude that lower disclosure of rating information is not necessarily associated with higher cost of equity. Instead, our findings emphasize the incentive for firms to engage in ratings shopping by publishing only the most favourable ratings.     

Is there an association between Vice‐Chancellors’ compensation and external performance measures?

We provide evidence on the pay for performance relation between Australian university Vice Chancellors’ compensation and independent measures of university teaching, research and other performance indicators provided by external ranking bodies. Our results show limited association between university rankings and Vice Chancellors’ compensation, but confirm that Vice Chancellors’ compensation is predominantly driven by size measures based on the different components of revenue. Further, we find that few universities offer performance‐based bonus payments. Our results are robust with respect to a number of sensitivity tests.     

Is there an Olympic gold medal rush in the stock market?

Investor sentiment and attention are often linked to the same non-economic events making it difficult to understand why and how asset prices are affected. We disentangle these two potential drivers of investment behaviour by analysing a new data-set of medals for the major participating countries and sponsor firms over four Summer Olympic Games. Our results show that trading volume and volatility are substantially reduced following Olympic success although returns appear to be largely unaffected. Analysis of data from online search volumes and surveys measuring investor sentiment also suggests that the market impact of the Olympics is linked to changes in attention.