Implementation errors during the transition to the International Financial Reporting Standards, Chief Financial Officer's compensation and turnover and earnings quality metrics

University of Technology, Sydney. School of Accounting.First, the thesis investigates the relation between the Chief Financial Officer's (CFO's) accounting talent, his/her compensation and his/her turnover. The thesis contends that accounting talent of the CFO can be measured by implementation errors, when a country moves to the International Financial Reporting Standards (IFRS) by adopting a "big bang" approach where all firms have to adopt IFRS within the same accounting period without the opportunity of early or late adoption. Eighteen different accounting errors are hand-collected for a sample of 280 Australian companies, which is used in constructing the CFO's accounting talent. The thesis finds (i) a positive relation between the CFO's accounting talent and the CFO's compensation ex-ante in the transition year, (ii) a positive relation between the CFO's accounting talent and the CFO's bonus compensation in the subsequent year (adoption year) and (iii) an inverse relation between the CFO's accounting talent and the CFO's turnover in the subsequent year (adoption year). Further tests on the Chief Executive Officer's (CEO's) accounting talent and the CEO's compensation and turnover and alternative specifications of our variables confirm our results. Overall the findings bring into question the outcomes of government intervention in setting executive compensation. Second, the thesis investigates the extent to which commonly used earnings quality metrics capture implementation errors. The metric used to measure implementation errors is the same as the measure used for the CFO's accounting talent. A positive relation is expected, between some commonly used earnings quality metrics and implementation errors as these metrics have been claimed to capture the extent to which earnings are calculated with errors. Ranging from highest to lowest in terms of explanatory power, from OLS regressions are: total accruals, earnings persistence, accruals quality and earnings predictability. Implementation errors in reported earnings however do not explain variations in "abnormal" accruals as estimated from a firm-specific time-series regressions of the modified Jones model and in earnings smoothness. Overall the results have implications for researchers and provide guidance regarding the appropriateness of earnings quality metrics selected in their research setting. The results also point to the fact that total accruals may be a "better" proxy for implementation errors compared to more "sophisticated" models

Accounting for business combinations and takeover premiums: Pre- and post-IFRS

© 2016, © The Author(s) 2016. The adoption of International Financial Reporting Standards (IFRS) in Australia in 2005 resulted in goodwill accounting shifting from systematic annual amortisation to impairment testing. We examine whether IFRS adoption changed the association between takeover premiums and the difference between a target firm’s pre-acquisition market and book values (pre-acquisition step-up). Our results show a negative association between takeover premiums and the pre-acquisition step-up of the target firm. This association reduces however, after Australia adopted IFRS and no longer required goodwill amortisation. Consistent with the incentives arising from contracts written around accounting numbers, our results are strongest for bidding firms which compensate their CEO using an accounting-based bonus plan. These results are robust to a battery of sensitivity tests

What drives the allocation of the purchase price to goodwill?

© 2015 Elsevier Ltd. This study examines the proportion of the purchase price allocated to goodwill after the successful acquisition of a publicly listed firm. Using hand collected data we document that 42% of acquirers record a nil amount for goodwill. We find that the amount allocated to goodwill is generally unrelated to target firm economic characteristics. In contrast, consistent with managerial opportunism, we find a positive association between the use of accounting based bonus plans to compensate acquiring firm CEOs and the amount allocated to goodwill. The amount allocated to goodwill also increases after Australia adopted IFRS which no longer required goodwill to be systematically amortised. Other variables associated with goodwill recognition include the acquiring firm's leverage, the takeover premium, whether the target and the bidder operate in the same industry, existing goodwill in the target firm before the takeover announcement and the method of payment used in the acquisition

Powerful CEOs, cash bonus contracts and firm performance

© 2019 John Wiley & Sons Ltd We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex-ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non-financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non-financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex-ante bonus ratios and higher proportions of non-financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)-related non-financial performance targets is positively associated with subsequent firm performance, and the use of undefined non-financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions

Development of an instrument to assess to quality of acupuncture: results from a Delphi process

Background: Quality acupuncture influences the outcomes of clinical research, and issues associated with effective administration of acupuncture in randomized controlled trials need to be addressed when appraising studies. Objective: The study objective was to achieve consensus on domains and items for inclusion in a rating scale to assess quality acupuncture administered in clinical research. Study design and subjects: An active group of Australian acupuncture researchers initially identified a pool of items assessing quality. The Delphi consensus process was then used to select and reduce the number of items, and an additional expert panel of 42 researchers were invited to participate. Participants initially ranked items along a five-point scale for the first Delphi round, and indicated an agree or disagree response during the second round. For an item to be retained into the second round, an item had to attain greater than 80% agreement that the item described a dimension of quality acupuncture and related study design. Results: Thirty-two (32) experts agreed to participate in the study. After two rounds of the Delphi process, consensus was reached on 14 domains and 26 items relating to quality acupuncture. Domains, items, and minimum standards related to study design; rationale of the intervention; criteria relating to needling stimulation either manual or electrostimulation; duration and frequency of treatment; and practitioner training. Conclusions: Items for inclusion in an instrument to assess quality acupuncture in clinical research were identified

The role of boutique financial advisors in mergers and acquisitions

© The Author(s) 2018. This study examines the choice of boutique financial advisors in mergers and acquisitions, and the consequences of this choice on deal outcomes and post-acquisition performance. Boutique advisors often specialize in a particular industry and focus exclusively on providing advice in mergers and acquisitions. The results suggest that boutique financial advisors are preferred when the deal is considered complex and when information asymmetry is high. The study finds that the benefits of hiring a boutique advisor flow to both the acquirers and the target firms. Acquiring firms benefit in terms of improved post-merger performance, while target firms benefit in terms of higher completion of value-enhancing deals and positive cumulative abnormal returns. Overall, these results provide support for the growing popularity of boutique financial advisors in the Australian market. JEL classification: G24, G34

CFO's accounting talent, compensation and turnover

© 2015 AFAANZ. This paper builds on and contributes to the literature on Chief Financial Officer's (CFO) compensation and turnover. We contend that the accounting talent of CFOs can be measured by accounting errors that occur when CFOs implement accounting standards. We find (i) a positive association between the CFO's accounting talent and the CFO's compensation ex ante in the transition year; (ii) a positive association between the CFO's accounting talent and the CFO's bonus in the subsequent year (adoption year); and (iii) an inverse association between the CFO's accounting talent and CFO turnover in the subsequent year (adoption year)

The cost of implementing new accounting standards: The case of IFRS adoption in Australia

© 2016, © The Author(s) 2016. This article examines the implementation errors that are made when accounting standards are implemented for the first time. Focusing on the transition to the International Financial Reporting Standards (IFRS), we provide evidence on the causes of these errors as well as the economic consequences of disclosing these errors. We find that the quality of both the chief financial officers (CFOs) and the auditors are associated with less implementation errors. We also find that there is a learning process as later adopters of IFRS report less errors compared to early adopters in the financial reporting cycle. In terms of the consequences of disclosing these errors, we find that firms reporting more implementation errors experience an increase in information asymmetry when these errors become known to market participants. Furthermore, we find a positive association between implementation errors and increases in audit fees when the implementation errors are disclosed. Our results are robust with respect to a number of sensitivity tests

Eyes on the prize: CEO and director retirement preferences and acquisitions

We examine whether the age of CEOs and independent directors impacts the likelihood of receiving a successful takeover offer. First, we replicate and confirm the results of Jenter and Lewellen and find that retirement age CEOs (age 64–66) are more likely to receive successful takeover offers. Second, we extend their study by investigating the retirement preferences of independent directors. We find that the likelihood of receiving a successful takeover offer increases when a higher proportion of independent directors are at retirement age. This finding suggests that independent directors have similar retirement preferences to CEOs