Spotlight on international finance
Spotlight on international finance
06 Apr 2010
A three-day major international conference on Banking, Finance, Corporate Governance and the Financial Crisis starts in Melbourne tomorrow, Wednesday 7 April.
Conference Chairperson, Dr Balasingham Balachandran, Associate Professor in La Trobe University’s Graduate School of Management, says more than 100 delegates will be presenting papers.
Many of the delegates are coming from overseas, including the US, UK, NZ, Germany, France, Belgium, Poland, Taiwan.
Participants also include a range of industry consultants and representatives from banks, including the Reserve Bank of Australia, as well as the Australian Taxation Office.
The two keynote speakers will be Professor Michael Theobald (University of Birmingham, UK, and Professor Robert Faff (University of Queensland).
Conference sessions include topics relating to Emerging Trends in Governance and Regulation of Financial Institutions and Boutiques Funds Management.
The conference will be held at the RACV Club, Melbourne.
It has been organised by the La Trobe University Graduate School of Management, in conjunction with the School of Accounting and the School of Economics and Finance.
Finance and business journalists are invited attend.
Contact: Dr Bala Balachandran Tel: +61 3 9479 3103;
Mob: 0425 886 640. Email: email@example.com
More details about the conference, pls see: https://www.latrobe.edu.au/gsm/fcgc
Abstracts of speeches and papers follow below
Keynote Speech 1:
Professor Michael Theobald (University of Birmingham, UK)
Managerial Share Ownership, Life Cycle Theory and Dividend Policy in an Imputation Tax Environment
Australia provides a unique experimental setting to examine the roles
of the earned/contributed capital mix and managerial share ownership in
dividend policy as it has a full imputation tax environment in
contrast to the classical tax environment in US. In an imputation
environment where imputation credits are available, we find that (a)
profitability plays a more significant role than earned /contributed
capital mix on the probability of paying a dividend and the determinants of
the dividend payout ratio in contrast to the findings of DeAngelo,
DeAngelo and Stulz (2006) in the US, and (b) managerial share ownership
is positively related with the probability of paying a dividend and the
determinants of the dividend payout ratio in contrast to the findings of
Rozeff (1982) and Jensen, Solberg and Zorn (1992) in the US. The study
conclusively demonstrates that the tax system will have significant
impacts upon the dividend decision.
Keynote Speech 2:
Professor Robert Faff (University of Queensland, Australia)
The Choice of Seasoned Equity Offerings Methods and Long Term Returns
Seasoned equity offerings (SEOs) in the UK provide valuable choices to the issuer in terms of renounceability and control dilution. This is especially the case following the removal of the size restriction of £15 m on share placements to institutional investors in January 1996. We formulate a set of hypotheses from a quality-signalling perspective, affording an analysis of the key interrelations between renounceability, control dilution, shareholder takeup, and subscription price discount. We analyze SEOs from two perspectives: market reaction to the announcement, and identification of the factors driving the choice of issue type. Generally, we find strong support for our predictions - most notably that: high-quality firms signal quality via lower discounts and/or pre-renouncements; high-quality issuers have lower idiosyncratic risk; firms with widely dispersed ownership structures and firms with the largest market capitalizations will choose standalone placements with book-building; and firms with higher (lower) ownership concentration and lower (higher) shareholder takeup will choose fixed-price placements (rights offerings).
Other Key Academic Papers
Professor Renee Adams (University of Queensland, Australia)
Asking Directors About Their Dual Roles
This paper uses a large survey of directors to investigate variation in directors' dual roles as advisors and monitors of management. I examine whether the advisory role encourages information exchange between the CEO and the board, as suggested by Adams and Ferreira (2007). I also examine factors related to directors' perceptions of their roles. Amongst others the data suggests that a) directors vary in their perceptions of their roles and directors' roles affect their perceptions of information exchange, b) directors who agree more that they primarily monitor management perceive that they participate less in boardroom discussion than directors who agree that the CEO often asks them for advice, c) directors with a stronger personal relationship with management perceive their advisory role to be more important, and d) directors on boards with more decision-making power perceive their monitoring role to be less important relative to their advisory role. The results are robust to using Heckman selection techniques to address nonresponse bias. Overall, the data suggests that monitoring alone may not be sufficient for good governance.
Professor Glenn Boyle (University of Canterbury, New Zealand)
Of Bureaucrats and Plutocrats: The Consequences of Direct CEO Participation
in the Pay-Setting Process
New Zealand listed ﬁrms vary greatly in the extent to which they allow direct CEO involvement in the executive pay-setting process, so we examine the extent to which this variation has implications for remuneration structures. CEOs who sit on the compensation committee are paid like plutocrats, obtaining annual pay rewards that have high mean (relative to the performance of such ﬁrms), and low sensitivity to poor performance shocks.
By contrast, CEOs who are not board members are paid more like bureaucrats, receiving pay increments that have both low mean and low sensitivity to ﬁrm performance. Omitted variable or self-selection biases cannot ex-plain these results. Having a direct input into one’s own pay discussions apparently
Professor Kevin Davis (University of Melbourne, Australia)
Tax Heterogeneity and Stock Supply Elasticity: Evidence from Australian Off-Market Repurchases
Off-market (self-tender offer) share repurchases by Australian companies provide a valuable example of corporate capital management where the effects of shareholder tax heterogeneity can be readily identified. We develop a model of the Dutch auction tender process commonly used for such repurchases which enables us to test whether the supply of stock tendered is consistent with complete tax arbitrage. We estimate an upward sloping supply curve of stock tendered, confirming results of less than perfect elasticity found in studies in other environments, and find less than complete tax arbitrage. The model is used to examine the effect of price constraints on auction price outcomes and distribution of tax benefits between shareholders in different tax positions and to assess the mispricing resulting from fixed price tenders. The results provide support for recent legislative changes which removed constraints on the allowable range of repurchase prices.
Professor Janice How (Queensland University of Technology, Australia)
Agency Conflicts and Corporate Payout Policies: A Global Study
We investigate the roles of firm and country level agency conflicts in determining corporate payout policies. Based on a large sample of 29,610 firms in 42 countries from 2001 to 2006, we show there is a form of “pecking order” in investors’ ability to extract cash (whether as dividends only or share repurchases) from firms. Although investors are able to use their legal powers to extract cash from firms in high protection countries, their ability to do so can be substantially hindered when agency costs at the firm level are high. In poor protection countries, investors seem to take whatever cash they can get, even though the amount may be small, and with scant regard for investment opportunities and firm level agency conflicts. Finally, compared to repurchases, we find dividends are more likely to be the sole method of payout in high protection countries and in non insider-dominated firms.
Professor Michael McKenzie (University of Sydney, Australia)
Earnings Announcements: Good News for Institutional Investors and Short Sellers
Both institutional owners and short sellers decrease their positions prior to earnings announcements, and increase their positions in the post-announcement period. Pre-announcement changes in institutional holdings and short interest have significant explanatory power with respect to abnormal earnings announcement returns, where most of the power comes from institutions and short sellers closing positions in order to avoid losses. Analysis of post-announcement returns indicates that aggressive trading by short sellers in reaction to earnings releases enhances immediate price discovery, which reduces their ability to profit from post-earnings announcement drift. The more muted reaction of institutional traders to earnings releases has no significant impact on earnings response coefficients, and allows institutions to successfully target stocks that underreact to earnings news.
Professor Alizera Tourani-Rad (Auckland University of Technology, New Zealand)
Corporate Governance and Cost of Equity: Do Financial Development and Legal Origin Matter?
Extant research documents that firm level corporate governance attributes are associated with the cost of equity capital. Another strand of research provides evidence regarding the beneficial impact of country level legal institutions and regulations on the cost of equity. We contribute to this literature by jointly examining the relative effects of country level institutional and firm level governance attributes on the cost of equity capital. Using a comprehensive sample of 7380 firm years drawn from 22 developed countries, we show that firm level governance attributes affect the cost of equity capital only in Common Law countries with high level of financial development. Our study is the first one to highlight the complementary effects of legal origin, financial development and firm level governance attributes in influencing the cost of equity capital
Professor Tony van Zijl (Victoria University of Wellington, New Zealand)
Rights Offerings, Subscription Period, Shareholder Takeup and Liquidity
In this paper we analyse the price adjustment process over the subscription period providing insights into the way in which takeup information is reflected in prices and the efficiency of the market. The signaling effects of rights issue choice and takeup upon liquidity are also empirically investigated. Our results indicate that takeup information is reflected in price adjustments over the subscription period and that quality related information disclosed on the rights announcement date further impacts upon prices in this period. Higher shareholders takeup improve the liquidity.