Diversification,corporate governance and firm value in small markets: evidence from New Zealand

We find that diversified firms in New Zealand are associated with a value discount of 19–42 per cent relative to single‐segment (undiversified) firms. Although several competing explanations have been offered in the literature, we find that the strength of corporate governance explains between 15–21 per cent of this discount. Specifically, board size, busyness of directors, CEO ownership and whether or not compensation of directors includes equity‐based components collectively explain a large part of the reported discount. Our results from companies trading in New Zealand complement recent findings in the US by not only confirming the existence of a diversification discount but also emphasizing the role of poor governance in destroying shareholder wealth by pursuing a value‐destroying corporate strategy. All our results hold after controlling for potential endogeneity in the decision to diversify and the choice of corporate governance structure by employing two‐way fixed‐effects and dynamic‐panel generalized method of moments regression techniques.     

Cultural relativity of accounting professionalism: Evidence from New Zealand and Samoa

This study investigates the value orientations of two culturally distinct countries in the South Pacific, namely, Samoa and New Zealand, with a view to providing empirical evidence on the relationships between accounting and culture. It uses Rokeach's value survey (1973), Schwartz and Bilsky's motivational domains (1987, 1990), and Hofstede–Gray framework to establish the possible linkages between values and accounting professionalism. The results provide culture-related evidence that suggests the possibility for the existence of major differences in the levels of accounting professionalism in the two countries. This study may have implications for the application of International Financial Reporting Standards (IFRS) and the analysis of differences in judgments of professional accountants on measurement, disclosure, and ethical issues. It is the first substantial accounting study on Samoa.     

Ex-dividend Day Pricing in New Zealand

Controversy continues over the question of tax clientele effects in the pricing of shares that pay dividends. The empirical results remain inconclusive, with variations in testing methods and sample formation the probable causes of much of the variation in outcomes. This study focuses on testing for the presence of a tax clientele effect consistent with prior tests for the same effect using a sample from a particular tax regime period in New Zealand in which companies could pay either or both taxable and non-taxable dividends. The results are generally consistent with the presence of a tax clientele effect in the New Zealand market for the time period, while providing essentially no support for the short term trading hypothesis.
JEL classification: G10; G15     

Casemix Management in a New Zealand Hospital: Rationalisation and Resistance

This paper discusses the use of a 'casemix' information system to rationalise and scrutinise clinical activity in a corporatised New Zealand hospital. The implementation of the casemix system was part of a management strategy to influence clinician behaviour by making visible the financial implications of clinical decisions. Clinicians were able to resist the application of this comparative surveillance system by challenging or diverting the information produced.     

Audit Education for Future Professionals: Perceptions of New Zealand Auditors

Audit professionals are charged with gathering evidence and expressing their opinions on the financial claims made by others. In New Zealand, as elsewhere, these opinions are relied upon for a myriad of decisions as to the economic position and operations of an organisation. The educational experience that future professionals receive in their tertiary study is important because it lays the pedagogical foundation for this role. The aim of this study is to evaluate those teaching practices, subjects and techniques that might be of value to future audit professionals. The analysis is uniquely from the perspective of the professional members who are most likely to benefit from students' experiences. The literature is used to identify relevant questions, and a survey of 360 professional auditors in New Zealand yielded a 36.4% response rate. A triangulated analysis of comments and scaled questions reveals that these professionals are concerned with communication, small business engagements and the relationships between, for example, risk and planning and independence and ethics. Findings also confirm the value of experiential and practice-informed learning and direct us to a few topics that may accommodate non-traditional teaching methods. Conclusions consider implications for teaching and future research.     

Bank computing in a changing economic environment: the IBIS project in New Zealand

This paper examines a major bank computing redevelopment attempted in New Zealand in the 1980s - the IBIS project. After the expenditure of some hundreds of millions of dollars this project was not proceeded with and this paper looks at the factors that led to its eventual failure. We find that dreams of banking technology can be as costly as other failures experienced by banks, and that banks must have regard to the competitive environment in building their computer systems.     

Consumption smoothing channels in open economies

Many intertemporal open economy macro models imply a theory of consumption smoothing channels; thus we build an empirical model to analyze the intertemporal smoothing role of saving components (fixed investments, inventories and trade balance) through the use of VAR impulse responses to different types of shocks. We find that for the OECD countries the bulk of intertemporal smoothing has been carried out domestically, via gross fixed investments and inventories, but the trade balance has also played a relevant – albeit volatile – smoothing role. We also characterize the dynamic behavior of each component: the trade balance and inventories are mostly used as short-run smoothing tools while fixed investment provides more and more smoothing over time. We can also address some empirical puzzles, such as the “excess sensitivity of investment” anomaly (Glick, R., Rogoff, K., 1995. Global versus country-specific productivity shocks and the current account. Journal of Monetary Economics, 35, 159–192) and the “saving-investment correlation puzzle” (Feldstein, M., Horioka, C., 1980. Domestic saving and international capital flows. Economic Journal, 90, 314–329).     

Some insights into the foreign exchange pricing puzzle: Evidence from a small open economy

One of the great puzzles of international finance research has been the surprising finding that firm value is only mildly sensitive, if at all, to exchange rate fluctuations. This runs against the conclusions of the standard net discounted cash flow theory. In this article we examine this puzzle, and provide some insights by looking at whether the result is peculiar to large economies like the US, using improved methodology including a residual regression model, the use of individual firm data, and looking at the effect of different exchange rates. We do find clear evidence that exchange rate movements affect the value of listed firms. We also find that the direction and degree of sensitivity is dependant on the currency used.     

Dividend Imputation and Shareholder Wealth: The Case of New Zealand

On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post–imputation period.     

Factors influencing the performance of foreign-owned banks in New Zealand

This article reviews factors affecting the performance of foreign-owned banks in New Zealand, where they control 99.2% of all banking system assets. Two sets of pooled cross-sectional time-series data—seven banks over the 10-year period 1991–2000 and eight banks over the 8-year period 1991–1998—provided the basis for the econometric analysis. The most important variables for bank performance were the length of time the foreign bank had been in New Zealand and the parent bank's return on assets. This suggests that parent-bank specific ownership advantages are the dominant factor in their subsidiaries’ performance in New Zealand.     

Estimating financial distress with a dynamic model: Evidence from family owned enterprises in a small open economy

Employing earnings shortfall as a financial distress indicator, we formulate a dynamic nonlinear model, implementing Wooldridge's conditional maximum likelihood estimator and accounting for potentially endogenous covariates. Likewise, we not only achieve a significant improvement in consistency and classification accuracy over static approaches, but we also manage to understand better the evolution of the financial distress process. In our sample of Greek listed firms the higher the positive performance and the lower the leverage at the initial period the greater the chance that a company enters financial distress further down the road, possibly due to manager–owner overconfidence and debt-imposed discipline by company's creditors.     

相对价格、收入预期与中国的经常账户波动——基于两部门跨期消费视角的实证研究

本文采用经常账户跨期分析法(Intertemporal Approach),分析实际汇率等相对价格变动对居民最优消费路径的期内替代和跨期替代效应,以及由此造成的对经常账户的影响,并对这种潜在影响的方向和程度进行实证检验。本文采用创新的方法构造我国季度宏观数据,并针对我国实际情况对模型参数进行估计,增强了实证分析的稳健性和针对性。估计结果显示,我国居民的跨期替代弹性约为0.16,包含相对价格因素的跨期均衡模型对我国经常账户的波动具有相当程度的解释能力;预期收入变动和实际汇率等相对价格因素对最优消费路径的共同作用——特别是实际汇率变动带来的期内替代效应——是导致2005年以来我国经常账户顺差与人民币升值幅度之间同向波动的重要原因。     

The effect of accounting firm mergers on the market for audit services: New Zealand evidence

This article examines the outcomes of accounting firm mergers using data about the frequency of audit switches, the numbers of partners in the respective firms, and perceptions revealed in interviews with partners. Evidence from client switches does not show any evidence that the mergers were followed by cost reductions, or of collusion to force prices up. The effects of the mergers appear to have been elsewhere—the merging firms reduced partner numbers substantially, increasing partner leverage so that individual remaining partners were better off. Data from interviews confirm these findings, and show that the culture of individual firms had a significant effect on determining which group of partners controlled the merged firm.     

Intergenerational Equity: Treatment of Infrastructure in New Zealand Local Government Financial Planning

This paper examines how local government authorities plan and financially provide for infrastructure while considering the needs of current and future communities. In New Zealand the Local Government Act 2002 provides a mandate for local authority planning through the requirement to publish Long Term Council Community Plans (LTCCPs). Our content analysis of the LTCCPs, annual plans and annual reports of five New Zealand local authorities reveals that these local authorities make conscious decisions about infrastructure that reflect concern for matters of intergenerational equity. They do so despite problems in relation to valuation, depreciation, deferred maintenance and financing of infrastructure assets.     

Initial public offering prospectus forecast errors and mandatory explanations: evidence from New Zealand

This paper examines management forecast errors in initial public offering (IPO) prospectuses of New Zealand firms and subsequent management explanations for earnings forecast errors in recent years. New Zealand has several unique features and recent changes that are worthy of research, including the requirement for management to make forecasts; a requirement to explain differences between forecast and actual; and a recent change that provides the voluntary opportunity to obtain a negative assurance opinion on forecasts. Using hand-collected IPO data between 1998 and 2014, we find that firms that include a negative assurance opinion on the prospective financial information in the prospectus have more accurate earnings and cash flow forecasts. We investigate the subsequent explanations for forecast errors, which are mandated by a financial reporting standard. We show that management tends to attribute negative and large forecast errors to external causes rather than their own actions. Our findings have implications for regulators and investors in New Zealand and other settings.     

Credit crunch in a small open economy

We construct an open-economy DSGE model with a banking sector to analyze the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland-a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.     

House Prices and Bubbles in New Zealand

This paper studies actual (real) house prices relative to fundamental (real) house values in New Zealand for the period 1970–2005. Utilizing a dynamic present value model, we find disparities between actual and fundamental house prices in the early 1970s and 1980s and from 2000 to date. We model the bubble component that is related to fundamentals (the intrinsic component), making it possible to highlight whether a bubble still exists after that component is accounted for. We then analyze any remaining bubble to detect any momentum behavior. Much of the overvaluation of the housing market is found to be due to price dynamics rather than an overreaction to fundamentals.

Contrarian Investing in a Small Capitalization Market: Evidence from New Zealand

This paper investigates the performance of accounting–based contrarian investment strategies in the New Zealand market. The return patterns of these strategies are then related to risk–based and behavioral–based explanations of the contrarian anomaly. Based on our analysis of the risk–return characteristics of the various strategies, we attribute the first year underperformance and second year outperformance of the value portfolios to expectational errors caused by noise trading in the relatively illiquid New Zealand market. The longer two–year correction process is in contrast to the much larger and more developed U.S. and Japanese markets, where value stock price corrections have been found to occur more rapidly. This provides support for the conjecture that longer horizons are required for value strategies to pay off in imperfectly competitive markets than in competitive markets.