Does geography matter to bondholders?

We find that the location of corporate headquarters significantly affects the firm’s bondholders. Similar to Loughran and Schultz (2006) and others, who show that investors are better able to obtain information on nearby companies, we look at firms located in large metropolitan cities, small cities, and rural areas and find that firms located in remote rural areas exhibit significantly higher costs of debt capital (of up to 65 basis points) in comparison to their urban counterparts. Unlike other studies that focus on the role of information asymmetries in the local bias of investors and decision makers, we are able to show that firms in remote areas experience greater costs of debt capital primarily because of a greater difficulty of monitoring their activities. We find that the adverse impact of bad corporate governance on bondholders is magnified in geographically remote firms, primarily because geographic distance reduces the effectiveness of external monitoring. Consistent with that, we show that in the private placement market, where firms are closely monitored by institutional investors, location plays no role in explaining the cross-sectional variation in the cost of debt capital across companies. We also find that the passage of the 2002 Sarbanes-Oxley Act, which brought about regulatory improvements in monitoring and governance, significantly reduced the agency costs of debt in rural firms. Taken together, our results indicate that the firm’s information environment interacts with the impact of corporate governance, particularly affecting the effectiveness of external monitoring in alleviating agency problems between insiders and debt holders.

Regulating islamic financial institutions : The nature of the regulated

More than 200 Islamic financial institutions (IFIs) operate in 48 countries. Their combined assets exceed $200 billion, with an annual growth rate between 12 percent and 15 percent. The regulatory regime governing IFIs varies significantly across countries. A number of international organizations have been established with the mandate to set standards that would strengthen and harmonize prudential regulations as they apply to IFIs. The authors contribute to the discussion on the nature of prudential standards to be developed. They clarify the risks that IFIs are exposed to and the type of regulations that are needed to systematically manage them. They consider that the industry is still in a development process whose eventual outcome is the convergence of the practice of Islamic financial intermediation with its conceptual foundations. The authors contrast the risks and regulations needed in the case of Islamic financial intermediation operating according to core principles and current practice. They outline implications for approaches to capital adequacy, licensing requirements, and reliance on market discipline. They then propose an organization of the industry that wouldallow it to develop in compliance with its principles and prudent risk management, and facilitate its regulation.Labor Policies,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Financial Intermediation,Banks&Banking Reform,Financial Intermediation,Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Banking Law

2014 Annual Report: A More Giving Australia

Philanthropy Australia defines philanthropy as the planned and structured giving of money, time, information, goods and services, voice and influence to improve the wellbeing of humanity and the community. We define the philanthropic sector as trusts, foundations, organisations, families and individuals who engage in philanthropy. Our role is to support the philanthropic endeavour of our Members

The trajectory of regulatory reform in the UK in the wake of the financial crisis

There has been much talk about regulatory reform around the world in the wake of the financial crisis but relatively little action. As a major international financial centre, the UK is very much at the heart of the debate and has a particular interest in the ultimate outcome. The financial crisis has exposed the weaknesses of ‘light touch’ regulation and ‘principles-based’ regulation, which characterised the UK system in the pre-crisis phase. Changes to the institutional structure of regulation recently announced by the new coalition government, combined with changes to regulatory style, are likely to have far-reaching consequences for the practice and intensity of regulation in the UK. This article reviews and assesses recent and proposed regulatory changes and considers the relationship between corporate governance and regulation. It evaluates the impact on the UK system of initiatives undertaken at international and EC levels as well as various interests and incentives within the UK that are likely to be influential in shaping the regulatory regime in years to come

Corporate Disclosure on Anti-Corruption Practice: A study of Social Responsible

This paper seeks to determine the extent of anti-corruption information disclosure in the sustainability reports originating from Gulf countries. Focus primarily on the fight against corruption, this study utilizes a deeply-rooted content analysis technique of corporate sustainability reporting, covering 66 Gulf Cooperation Council (GCC) firms during 2014. Strengthened by the application of institutional theory, insight into the results points to a state of limited maturity regarding the disclosure of anti-corruption procedures in the region. More specifically, the results highlight the compliance in the reporting of conduct code, while reporting information on whistle-blowing was significantly less in comparison. Firms in Qatar and UAE ultimately release better informed reports; inclusive of detailed information on internal anti-corruption practices

Short-term debt maturity, monitoring and accruals-based earnings management

Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm’s creditworthiness is not in doubt. To explore the implications of these arguments on managers’ earnings management incentives, we examine a sample of US firms over the period 2003–2006 and find that short-term debt is positively associated with accruals-based earnings management (measured by discretionary accruals), consistent with the financial distress theory. We also find that this relation is significantly weaker for firms that are of higher creditworthiness (i.e. investment grade firms), consistent with monitoring benefits outweighing financial distress reasons for managing earnings

The Role of Boards in Reviewing Information Technology Governance (ITG) as Part of Organizational Control Environment Assessments

IT Governance (ITG) is an important topic as US companies must now monitor ITG under the provisions of the Sarbanes-Oxley Act (2002) (Hoffmann, 2003). Trites (2003) indicates that directors are responsible for strategic planning, internal control structures and business risk. The control environment is defined in Australian Auditing Standard AUS 402 to mean "the overall attitude, awareness and actions of management regarding internal control and its importance to the entity". This paper contributes to the knowledge of ITG by forming an integrated ITG Literature (IIL) which links prior research to four key dimensions of ITG. The paper presents a review of literature on ITG performance measurement systems which assess the ability of organizations to achieve these four ITG dimensions. A revised ITG Dimensions Model offered for consideration. The final contribution of the paper is to propose critical issues Boards should consider as part of their assessment of organizational control environments

Are U.S. CEOs Paid More than U.K. CEOs? Inferences from Risk- Adjusted Pay (CRI 2009-003)

We compute and compare risk-adjusted pay for US and UK CEOs, where the adjustment is based on estimated risk premiums stemming from the equity incentives borne by CEOs. Controlling for firm and industry characteristics, we find that US CEOs have higher pay, but also bear much higher stock and option incentives than UK CEOs. Using reasonable estimates of risk premiums, we find that risk-adjusted US CEO pay does not appear large compared to that of UK CEOs. We also examine differences in pay and equity incentives between a sample of non-UK European CEOs and a matched sample of US CEOs, and find that risk-adjusting pay may explain about half of the apparent higher pay for US CEOs

Three Essays on Risk Factor Disclosures

Beginning in 2005, the US Securities and Exchange Commission (SEC) proposed changes to the disclosure of risk information in the annual 10-K reports. Based on these changes, large firms in the US are required to disclose risk factors in Item 1A of their 10-K. This study contains three essays that review the current literature on Risk Factor Disclosures (RFDs) and employ empirical methods to test the usefulness of this disclosure. The first essay reviews the existing literature on RFDs and provides direction for future research. This review discusses the strengths and limitations of current research in the field and suggests further research relating to the call for comment by the SEC, the contents and topics in RFDs, the usefulness of RFDs to investors, in contractual settings, and the market in general. In the second essay, I develop a new measure of RFDs that captures managerial discretion in risk factor reporting to examine the usefulness of RFDs in the private and public debt markets. In both debt markets, I find that RFDs are informative and that the risk profile of firms is reflected in their cost of debt. In the private debt market, I find that firms with RFDs above expectation have lower cost of debt as possible reward for transparency. Similarly, firms with RFDs below expectation also have lower cost of debt, suggesting banks already know that the firms are less risky. In the public debt market, I find that firms with RFDs above expectation have higher cost of debt while firms with lower risk disclosure than expected have lower cost of debt. The results suggest public lenders take RFDs as representative of firm risk. The third essay examines the effect of corporate governance on managerial discretion in reporting RFDs and the subsequent impact on cost of debt. To examine this effect, I focus on firms that pay a penalty for perceived higher risk in the public debt market. I find evidence that corporate governance promotes transparency in reporting RFDs. I also find that risky firms with either strong or weak corporate governance have higher cost of debt, suggesting corporate governance may not be important to public lenders. The findings in this dissertation suggest that RFDs are both informative and useful to borrowers and lenders. The findings are useful to regulators in setting mandatory disclosure requirements, debt providers in evaluating firm risk, and management in implementing organizational corporate governance structures

Corporate sustainability reporting index and baseline data for the cruise industry

Sustainability policies and corporate reports demonstrate the impacts cruise companies acknowledge as their responsibility, and the actions put in place to address them. This paper develops a corporate social responsibility index based on the Global Reporting Initiative, with industry specific additions including labor and human rights, health and safety, and environmental and economic aspects. Companies disclose more management than performance data, which is typical of early stages of development. Companies disclosing less information focus on soft indicators which are easy to mimic and demonstrate posturing. Items disclosed tend to be marginal to the core of the business, have a positive economic impact or pre-empt sector regulation. Reports echo the voice of the corporations and not the demands of stakeholders. Institutional isomorphism has not influenced a homogenization in reporting, with only the largest firms reporting at this stage