Corporate Governance, Cash holdings and Value of a Firm: Evidence from Australian Firms

The present study analyses influence of board structure and cash holdings on the value of Australian firms for the period 2004 to 2010. Australian Stock Exchange (ASX) adopted the Principles of Good Corporate Governance Guidelines in 2003 and Australian firms have started adopting these principles starting 2004. Similarly the reporting framework of Australian firms is harmonized with the rest of the world with adoption of Australian International Financial Reporting Standards (AIFRS) starting in 2004. Corporate cash holdings despite their significance have not been considered extensively in prior literature outside the US. Cash holdings may have significant influence on the value of the firm as too much excess cash may lead to misuse of these funds by entrenched managers. Corporate governance has a role to play in maintaining appropriate cash holdings and their use. The present has two objectives: it considers the influence of corporate cash holdings on the value of Australian firms; and it examines the role of board structure on the relationship between cash holdings and value of the firm. The present study considers all non-financial firms that are part of the All Ordinaries Index (AOI). The present study constructs Fama French 25 portfolio and estimate the excess return as the difference between actual return and the average return of the relevant FF portfolio. OLS analyses show that board independence has no significant impact on the value of the firm though cash holdings have significant influence. Analysing using panel data methods however unearth the significant influence of board independence on the value of Australian firms

Corporate Social Performance and Use of Debt: an Examination of Australian Companies

This study examines whether the corporate social performance (CSP) activities of firms influence the structure of debt in the Australian context. Long-term debt is often associated with higher monitoring by lenders, which suggests that firms may benefit from using long-term debt strategically. Short-term debt arises from regular business dealings with a number of primary stakeholders such as customers, suppliers, employees and lenders. We propose in this study that businesses that are committed to improving CSP outcomes may reduce use of short-term debt contributing to building sustainable long-term relationships with the primary stakeholders. We therefore investigate whether firms that prioritise CSP favour long-term debt or short-term debt. Using a sample of Australian Securities Exchange (ASX) listed firms, this study finds that the level of CSP is not associated with long-term debt use, but there is a significant negative association between CSP and the short-term debt usage. This finding suggests that firms with stakeholder-friendly policies reduce their use of short-term debt rather than long-term debt. The reduced use of short-term debt helps resolve possible conflicts between the primary stakeholders and a firm, thus this study presents evidence supporting stakeholder theory and conflict-resolution hypothesis

Foreign direct investment and emerging markets: A study of direct investment in Thailand with a focus on Australian investment

Thailand has experienced significant economic improvement and has become one of the key economic centres of Southeast Asia. Foreign direct investment (FDI) is one of the most obvious contributors to this performance as it is generally agreed that it has contributed to Thailand's development significantly. The purpose of this study is to provide an introduction to and demonstrate the feasibility of FDI in Thailand. Early studies are discussed in an introduction leading to the motivation and research question of this study. The literature review related to Foreign Direct Investment provides the theoretical framework for the study. This plus the context of the study in Thailand as outlined lead to the methodology of this study, then consideration of the empirical results. And finally, to the implications of the research are highlighted. This thesis focuses on the determinants of FDI in Thailand applying the Autoregressive Distributed Lag (ARDL) bounds test to analyse quarterly data over two and a half decades during the period 1991-2015, to consider the major problems relating to the current endeavour to study "the influences on investors to investment in Thailand with reference to the effective factors for decision-making and with suggestions for development of FDI." In addition, the study also develops this finding to the top ten main countries, including Australia, that invest in Thailand. The primary findings show cost, production efficiency seekers, and political instability, affect the investors' decisions in investing in Thailand. However, GDP and trade openness did not affect in this study. For Australia, as the country of interest, trade openness and cost affect the Australian investors’ decisions in investing in Thailand. Importantly, Japan as the biggest investor to invest in Thailand had a similar result

Determinants of bank credit growth in Australia: Effects of securitisation and the Global Financial Crisis

Global financial markets have changed dramatically over recent decades. One of the most substantial changes is the now widespread use of securitisation in the financial system. Banking institutions are turning from interest-dependent returns or interest-based spread to fee-based activities, including lines of credit and many different forms of credit guarantees, adjusting to the altered financial environment in which they operate. Given the recent Global Financial Crisis (GFC), this study focuses on the benefits and costs of asset securitisation as a funding tool for modern financial institutions. The study addresses the important issue of the financial excesses that resulted in recession and high unemployment rates, not seen for decades in most of the Western world. This study evaluates the effect of using asset securitisation and other lending determinants on bank credit growth of banking institutions operating in Australia, both local and foreign. The study classifies the determinants into supply-side determinants, which are internal or bankspecific characteristics, and demand-side determinants, which are external or macroeconomic determinants. Credit growth is used as a proxy for operational performance, represented by two key indicators (dependent variables): business credit activity and housing credit activity. Each of these indicators has different measures. Data from a sample of 35 banking institutions was collected over three distinct periods between 2004 and 2012. Of the banks, 10 are domestic banks, of which six securitise assets. None of the 25 foreign banks, a mix of subsidiary and branches, securitise assets. Panel data methods are employed to conduct the analysis. A random effects regression model is used to analyse the effect of the independent variables on the dependent variables. The business credit activity indicator is measured by credit growth, business loans growth and credit card loans growth. Housing credit activity is measured by housing loans growth, housing loans owned growth, housing loans investment growth and housing loans others growth. The explanatory variables used in this study's regression models are financial and economic indicators; that is, supply-side determinants (bank size, total deposits, liquid ratio and asset securitisation) and demand-side determinants (growth of Gross Domestic Product [GDP], inflation rate, interest rate and unemployment rate). When examining the determinants on the supply side, the results of the analysis are mixed regarding the effect of securitisation on bank credit growth; but, as expected, most of the empirical results confirm that securitising assets does not have a significant positive effect on credit growth in any of the three GFC periods considered (crisis or no-crisis periods). The proposition was that large banks are likely to be more efficient and able to acquire funds at a lower cost due to the amount of collateral they can provide. However, the empirical results inconsistently support this proposition. Total deposits have a significant effect from the perspective of securitising assets as an alternative and additional funding source that can be used to cover credit demand. Neither the asset securitisation nor liquidity ratio had a significant effect on bank credit growth. In contrast, the results for demand-side determinants show that interest rate and unemployment rate have a significant negative effect on credit growth. The inflation rate has a positive significant effect on credit growth. There is no effect of GDP. Securitisation activities enable the banking sector to better diversity their financial resources base as well as add flexibility to their financial resources and loan portfolio, enabling them to better cope with challenges arising in their operational environment. However, the random effects estimates in the study show that banking institutions do not, in fact, gain benefits from securitising assets. Asset securitisation contributes to creating a more integrated market by providing new categories of financial assets that suit investor's preferred investment risk profile by increasing their capacity. If banking institutions know which factors are most likely to enhance their credit growth this could lead to increased competition in the marketplace, assisting in keeping prices low on the supply side of credit and thus encouraging growth in the business sector, which will drive job creation, resulting in a decrease in the unemployment rate

Nepalese Commercial Banks: Performance, Non-performing Loans and Corporate Governance

The purpose of this study is to examine the macro-economic, bank specific and corporate governance determinants of non-performing loans in Nepalese banking. In addition to this, the next objective of the study is to analyze the influence of corporate governance on bank performance in Nepal. The study is to investigate the above objectives in order to improve the means by which commercial banks in Nepal manage their non-performing loans and performance. This will provide guidance for the regulatory bodies in safeguarding the stability and integrity of the Nepalese financial system

The causal relationship between stock market development, bank development, Islamic and conventional insurance development, and economic growth: The Case of Malaysia

This thesis examines the causal relationships among bank development, stock market development, conventional insurance, Islamic insurance, and economic growth in Malaysia using annual data for the period from 1975 to 2012. These relationships are studied a using multivariate VAR framework to evaluate long-run relationships among bank development, stock market development, conventional insurance, Islamic insurance, real gross domestic product (GDP) per capita, fixed capital formation (FCF), trade openness, and the consumer price index. The study also uses vector error correction model-based (VECM) causality tests to establish long- and short-run causality relationships among bank development, stock market development, conventional insurance, Islamic insurance, and economic growth. It uses four bank development indicators: the ratio of commercial bank assets divided by commercial bank plus central bank assets (BTOT), liquid liabilities (M3), domestic credit to the private sector (DCP), and bank deposit liabilities (LBDL). It further uses the total value traded ratio (VT), turnover ratio (TR), number of listed companies (LC), market capitalization (MC), and total capital raised in the primary market (IPOs) as indicators for stock market development. It also uses five variables representing conventional insurance, specifically gross premium income (life insurance), gross premium income (non-life insurance), life insurance penetration, non-life insurance penetration, and non-life insurance density, and three variables for Islamic insurance: assets of family takaful funds (AFTF), assets of general takaful funds (AGTF), and total contributions by participants in the family takaful (CPFT). The empirical results indicate that the direction of causality among bank development, stock market development, conventional and Islamic insurance, and economic growth in Malaysia is sensitive to the choice of proxy used for bank development, stock market development, conventional insurance, and Islamic insurance

CEO's Pay Slice, Governance, and Performance: A Study

The present study analyses the share of the top executive compensation captured by the CEO for a sample of 2,153 firm-years of Australian firms for the period 2005 to 2011. Empirical findings from both the OLS and FE analyses show that median industry CEO pay slice, board independence, CEO tenure and insider shareholding have a significant positive influence on the CEO pay slice, while board size, CEO turnover and CEO shareholding have a significant negative influence after controlling for economic determinants of CEO pay such as size of firm, growth opportunities and performance. CEO pay slice has no significant influence on the firm value as measured by Tobin's Q. Analyses also show that CEO pay slice has a significant positive impact on RoA and stock returns. These results for the Australian firms are in variance with that of Bebchuk et al. (2011) for the American firms

Capital Structure Determinants: Malaysian Evidence

The present study analyses the capital structure choice of Malaysian firms for the period 1993 - 2003. Debt levels have increased substantially after the 1997 East Asian Financial Crisis. Analysis shows that tangibility has no significant influence on leverage in both pre-crisis and post-crisis periods. This finding contradicts the findings of earlier studies. Similarly profitability does not appear to have any influence on leverage during both pre-crisis and post-crisis periods. Size has significant negative influence on leverage in both pre and post crisis periods. One plausible reason could be that investors have more information about large companies and are willing to supply equity to these firms as suggested by information based theories of capital structure. Growth as expected has significant negative influence on leverage in both periods. This is consistent with information based theories of capital structure that suggest that growth firms face more uncertainty compared to stable mature firms and may therefore choose to have less leverage. Tax-based explanations of capital structure suggest that presence of non-debt tax shields obviates the need for leverage. However, analysis shows that NDTS has positive impact on leverage in both periods thus rendering tax-based explanations untenable in the Malaysian context. Liquidity has significant negative influence during the pre-crisis period while it has no significant influence during the post-crisis period. Volatility has significant influence on leverage though the degree of influence appears to be small in both periods. Stock price performance has negative influence on leverage in both periods indicating possible equity offerings rather than debt offerings as firms may be timing their equity issues. Thus there is support for information based explanations of capital structure

Trading Activity in the Indian Stock Markets: A Historical Comparison of the Bombay Stock Exchange and the National Stock Exchange

The efficient functioning of a security market has assumed greater importance in recent years, as the policies of liberalisation and globalisation initiated in the Indian economy envisage increased role for market forces in the allocation of investment resources among the most productive uses. The stock market can perform this allocation function effectively only when the securities traded on it are liquid, prices of securities are stable, costs of trading are minimal and the information is processed quickly and effectively. The attributes of liquidity, volatility, trading costs, and efficiency of a market and the securities traded on it characterise the trading activity of a security market. The presence or absence of each of these attributes has implications for the working of the economy in general, and the securities market in particular. Hence, the present study makes efforts to examine the trading activity in the Indian securities markets

Factors influencing on-market share repurchase decisions in Australia

Purpose - The purpose of this study is to examine factors influencing decisions to repurchase shares on-market in Australia. The present study also examines the role of board size, board independence and chief executive officer duality on the decision to repurchase shares on-market by Australian firms. Design/methodology/approach - This study blends the traditional motivations of share repurchases with the influences of governance. The sample consists of all non-financial firms included in the Australian All Ordinaries Index (AOI) for the period 2004-2010. The repurchase sample consists of 104 repurchases undertaken by 62 firms. A probit panel model is used to analyse the decision to repurchase shares on the market. To account for unobserved heterogeneity, random effects panel models are also used. Findings - Analyses of a sample of non-financial firms included in the AOI for the period 2004-2010 show that size is significantly positively correlated with the decision to repurchase shares, thus supporting the agency cost. Findings also support the undervaluation and signalling hypotheses. Similarly, there is evidence in support of the view that firms repurchase shares to reach their target optimal capital structure. The present study also finds a significant positive association between board independence and the decision to repurchase shares in Australia. Research limitations/implications - On-market share repurchases help firms to signal their future growth opportunities and resolve agency conflicts. Signals from repurchases also help markets discover the true fundamental values of firms. Governance plays an important role in improving the effectiveness of on-market share repurchases, as independent directors provide both monitoring and discipline which helps to ensure that firms have valid motivations in undertaking share repurchases. Practical implications - These findings have implications for capital restructuring and governance policies. Principle-based governance frameworks that prevail in countries like Australia work as well as rule-based governance. Originality/value - This study highlights the complementary roles that financial policies and corporate boards play in corporate governance. Independent boards ensure that firms pursue appropriate financial policies that help resolve agency conflicts and information asymmetry problems