MIXED OWNERSHIP,MANAGERIAL INCENTIVES AND BANK COMPETITION

We consider deposit competition between two banks, where prior to competition one bank is subjected to a nationalization decision and the other bank chooses managerial incentives. The government who maximizes a modified form of social welfare (with greater weight on profit than depositor surplus) chooses only partial nationalization, which still hurts the rival private bank. But by offering deposit‐linked managerial incentives the private bank recovers its lost profit and induces even less nationalization, leaving social welfare unchanged. However, under interest rate competition for differentiated deposits the private bank offers profit‐linked managerial incentives while the other bank may be completely nationalized.     

The market response to corporate scandals involving CEOs

This article examines corporate scandals of both a financial and nonfinancial nature between 1993 and 2011 which is expressly linked to a firm’s CEO. Findings suggest that in the short run, investors react adversely to such events and that recalcitrant CEOs end up costing their shareholders dearly. Such scandals are more likely to occur among large firms, firms with insiders on the board and where the value of options granted to a firm’s managers is substantial. However, firms with more cash flows are less likely to be mired in such scandals, and their stock returns are less likely to be affected. There is an increase in stock price volatility of affected firms in the days following the announcement of the scandal. A point of respite for investors is the damage being confined to the short run. The stock price performance of the firms affected by the scandals matches the performance of control firms in the long run post-announcement. However, the operating performance of the sample firms is better than their matched counterparts in the years after the scandal. We contribute to the extant literature by considering corporate scandal events that are the doings of a firm’s CEO and not necessarily financially motivated.     

Disclosure Overload? An Empirical Analysis of International Financial Reporting Standards Disclosure Requirements

Despite the positive effects of the adoption of International Financial Reporting Standards (IFRS) noted in the literature, standard setters have issued reports suggesting that the required disclosures in IFRS have become too burdensome and should be reduced. We examine this disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of 196 Australian listed companies. The Excess Baggage Report classifies current IFRS disclosure requirement items into three categories: Retain; Delete; and Disclose if Material. We find that Retain items are disclosed the most, followed by those classified as Disclose if Material, and then by Delete items. Only Retain items are significantly associated with companies’ disclosure incentives. We also find that these disclosure categories are value relevant, especially for below-median profitability firms. Our findings may provide input to the IASB’s ongoing Disclosure Initiatives project.