The use and usefulness of managed fund ratings in Australia

Managed fund ratings have become an increasingly available piece of information to guide choice of managed funds. From the perspective of modem portfolio theory and specifically within the efficient markets paradigm, the value of such information is questionable. No profitable relationship should be able to be demonstrated between a fund rating and its subsequent performance. This thesis investigates the relationship between fund ratings and subsequent performance using Morningstar ratings, the most prominent Australian rating provider, for two of the largest and most important groups of managed funds. A positive relationship between a fund\u27s star rating, its quantitative and qualitative components, or quantitative sub-components and subsequent performance is the: least supported relationship. Four major rating companies compete for the attention of individual investors and financial advisers, two key target markets of managed fund rating suppliers. A survey of a sample of informed individual investors from the Australian Shareholder Association demonstrates that a consumer behaviour framework may better explain the role of ratings to individual investors. Ratings act as both an information source and selection criteria. A survey of a sample of financial advisers from the Financial Planning Association confirms that ratings are used by advisers, primarily to help satisfy \u27reasonable basis\u27 tests imposed on financial advisers when making recommendations to investors. For groups in each sample a link between a rating and subsequent performance was the main purpose they used a rating. The largest group of both samples reported that they considered the main purpose of a rating was to identify well managed/administered funds. The construction of ratings in Australia provides a contrast with overseas counterparts in the significance attached to qualitative or forward-looking components. Each rating company strongly promote their ability in making these qualitative assessments and seek to articulate the difference in their ratings to users. The importance attached to the range of possible inputs to ratings varies by identifiable clusters of individual investors and financial advisers. The largest cluster in each sample considers historical performance inputs more importantly than the rating suppliers. The smallest cluster in each sample considers the forward-looking inputs as the most important. This is in contrast with the rating suppliers who emphasise these inputs. Further there appears to be a lack of discrimination in the choice of rating to rely on given the reported importance attached to various inputs and the corresponding importance given them by the various rating suppliers

Corporate Social performance and Financial Characteristics

Whereas firms traditionally have been evaluated solely on financial criteria, contemporary firms are also evaluated on various non-financial criteria, including Corporate Social Performance (CSP). Such data is useful in the pursuit of evidence of a relationship between CSP and various financial characteristics, including financial performance. Evidence on such relationships is valuable from many perspectives. It is valuable to managers who seek to improve their understanding of the ways in which CSP interacts with firm characteristics, it is valuable to investors who seek to improve their understanding of how CSP relates to financial asset characteristics, and ultimately it is valuable to regulators who seek to improve their understanding of the firms financial incentive to self-regulate on corporate social responsibility issues. This paper presents a cross-sectional analysis comparing environmental, social and corporate governance performance with financial characteristics of 237 Australian firms over the August 1997 to July 2003 period. The analysis allows for some heterogeneity in CSP-financial characteristics relationships related to company size, trading history and industry, which provides valuable additional information on such relationships. Findings indicate that the financial incentive to self-regulate on environmental criteria is weak and contingent on industry. The financial incentive to self-regulate on social criteria is marginally stronger and less contingent on industry. The financial incentive to self-regulate on governance criteria is very strong across the board, though it is particularly strong within the banking, diversified financials, insurance and telecommunications industries. This is indicated both by a significant positive association between governance and financial performance and very strong significant negative association between governance and risk. Acknowledgements: The authors are grateful to Corporate Monitor and the Securities Industry Research Centre of Asia-Pacific (SIRCA) for supplying data and support.Corporate environmental performance, corporate social performance, corporate governance performance

Retirement Savings Investment Strategy: Member Choices and Performance

Three crucial ingredients influence how much individuals will have to fund retirement income needs: how much they contribute to savings, how long they save for, and the performance of these savings. This paper focuses on the issue of performance, and how individuals perform when they are given the choice of making their own investment strategy for their retirement savings contributions. An empirical examination using a large sample gathered from four Australian superannuation funds is utilised and finds that on average members underperform their own funds default option both in raw returns and on a risk-adjusted basis. For trustees and regulators charged with the responsibility of looking after the interests of members an important result identifies significant differences in performance based on how members are allowed to construct their investment strategy.Retirement savings, Superannuation, Asset allocation, Investment performance Acknowledgements: The authors gratefully acknowledge the support of the four funds who supported this research. We would also like to thank Jacqui Whale for her efforts in making sense of four databases. Paul Gerrans would also like to thank Susquehanna University for the time in writing the paper.

The Corporate Social Responsibility and the Theory of the Firm

This paper investigates the extent to which the concept of corporate social responsibility (CSR) challenges the validity of the traditional firm model. Contrary to what have been suggested by some critics of CSR, CSR does not appear to have been accepted as an alternative to the traditional profit maximising objective. Rather, CSR appears to play an integral part in the development of new theories aiming to improve our understanding of how contemporary firms operate, survive and succeed.

Gender differences in information resource usage when making retirement saving decisions

Population ageing is raising the profile of retirement incomes policy. In Australia assets of retirement savings funds are growing rapidly and fund members are assuming a greater role in determining funds\u27 investment strategies. The decision processes of fund members have not been extensively researched, however, these decisions are significant not only for members but also for employers and government. This paper provides information on retirement savings in Australia and reports on a survey of members of the Superannuation Scheme for Australian Universities (SSAU). In 1999 members of SSAU were asked to choose between a defined benefit scheme or one of four investment accumulation accounts. The paper explores gender differences in resources used to make the decision. Results indicate women were more likely to make less risky investment choices. Men were less likely to consult anyone about their decision and were more likely to use web-based information sources

Superannuation Fund Communications in Good and Bad Times

We examine the content and presentation of the first statement to members appearing in a Superannuation Fund’s annual report (typically made by the Chairperson or the CEO). We reflect on the words and themes employed, and the clarity and readability of communication. Our focus is on the respective differences between statements made in the year prior to the global financial crisis (GFC) and those made during the GFC. A content analysis of the CEO statement was conducted for 81 annual reports in each of the two years - respectively ‘good news’ and ‘bad news’ years. The readability of statements (as measured by the FLESCH reading ease index) is surprisingly consistent. Readability scores for ‘bad news’ statements do not differ significantly from those for ‘good news’. Although the themes appearing in the statements remain relatively constant, their ordering and the emphasis accorded them differs greatly. ‘Good news’ statements focus on fund investment performance, while ‘bad news’ statements are oriented more to ‘market performance’. This is consistent with the literature which suggests that poor performance will be attributed to external factors. Compared with company annual reports, the superannuation fund statements tend to adopt a more ‘folksy’ style, reflecting both the different audience and purpose of the report. If message consistency is an attribute of successful communication, then there is room for improvement in the writing of the statements. The role of the market performance and its impact on fund investment performance needs highlighting in good and bad return periods. Similarly the emphasis on investment time horizons, particularly descriptions of superannuation as a long-term investment, also needs reinforcing in good and bad times. This recommendation is consistent with ASIC’s move in 2008 to ensure funds include medium to longer term performance data in annual reports and/or member periodic statements. The paper contributes to the literature on readability in corporate communications by examining the annual reports of Superannuation Funds experiencing a ‘bad news’ year due to the GFC, and comparing them with the previous years’ ‘good news’ reports

The role and relevance of domain knowledge, perceptions of planning importance, and risk tolerance in predicting savings intentions

The need for individuals to increase retirement savings has been widely promoted, yet our understanding of the motivations of individuals to save at a higher rate remains sparse. This paper reports the findings of a survey of 2300 retirement savings fund members and their motivations to contribute more to savings and to actively manage their investment strategy. Utilising the theory of planned behavior, the study reveals respondent’s self-reported attitudes, subjective norms and perceptions of behavioral control account for a high proportion of the variance in behavioral intention. Contrary to expectations, the study finds that respondent’s risk tolerance adds little to the prediction of behavioral intention. By contrast, perceptions of planning importance and self-assessed planning preparedness (domain knowledge) are found to exert powerful indirect influences on behavioral intentions via the perceived behavioral control construct. This novel finding confirms the relevance of planning constructs and financial literacy to an understanding of retirement savings behavior, and establishes a need to improve levels of financial literacy in society

Using Digital Lectures to Assist Student Learning

This study explores the use and usefulness of digital lectures as a resource to augment conventional face-to-face lectures for students in an undergraduate business course. Twelve digital lectures were provided to students enrolled in a third year finance unit of study. The digital lectures were prepared at the desktop using proprietary software to record on-screen activity (including lecture slides, real-time annotations and demonstrations) and voice-over narration. Each lecture was made available online and on CD concurrently with the face-to-face lecture (attendance at which was voluntary). Twelve principles of multimedia design (Mayer 2009), based on dual-coding theory (Paivio 2006) and a model of the working memory (Baddeley 1992; Baddeley 1999), influenced the design of the digital lectures. A framework was developed to explain the potential learning benefit for students from using digital lectures. It highlighted issues of access, control and learning as being important. A voluntary survey was independently conducted after the semester finished to establish how students used the digital lectures and whether they found this resource aided their learning. Forty students from a class of 52 completed the survey. Students reported using the digital lectures to supplement rather than replace the face-to-face lectures. Of the twelve lectures in the unit, students reported attending nine face-to-face lectures and viewing nine digital lectures, on average. A range of positive statements about the value of digital lectures to aid student learning recorded very high mean levels of agreement. In these student responses, all three characteristics of access, control and learning emerged to explain why students used the digital lectures consistently and regarded them as a valuable resource. The high value placed by students on these digital lectures is subsequently confirmed by anonymous student unit evaluation information collected by the university

Retirement savings investment strategy : member choices and performance

Three crucial ingredients influence how much individuals will have to fund retirement income needs: how much they contribute to savings, how long they save for, and the performance of these savings. This paper focuses on the issue of performance, and how individuals perform when they are given the choice of making their own investment strategy for their retirement savings contributions. An empirical examination using a large sample gathered from four Australian superannuation funds is utilised and finds that on average members underperform their own fund’s default option both in raw returns and on a riskadjusted basis. For trustees and regulators charged with the responsibility of looking after the interests of members an important result identifies significant differences in performance based on how members are allowed to construct their investment strategy

Normative influence on retirement savings decisions: Do people care what employers and the government want?

The need for Australians to increase retirement savings has been widely promoted. Yet our understanding of the motivations of individuals to save at a higher rate remains sparse. This article reports the findings of a survey of superannuation fund members and their intentions to contribute more to superannuation and to manage their investment strategy. The article uses the theory of planned behaviour to focus on the important motivational influence of social norms. Formative research identified a number of influential social referents. Among identified referents, the study found that spouses appear to be the primary source of social influence for retirement savings decisions. The government and employers appear to exert little influence, and financial advisors and superannuation funds take up the middle ground of social influence. Possibilities for interventions designed to influence behaviour are discussed; however, conclusions are tempered by the fact that correspondence between intention and behaviour is not tested in the present research