Browsing by Author "van Zijl, Tony"

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Open Access
Agency Theory and Trust Ownership of Shares
(Te Herenga Waka—Victoria University of Wellington, 2005) Emanuel, David; van Zijl, Tony
The problems of agency theory related to security valuation are normally discussed in the context of “owner-managers” and “outside shareholders”, and/or equity-holders and debt-holders. In this paper we discuss agency problems that emerge when there is only one shareholder (and no debt), but where the shareholder is a trust with separate income and capital beneficiaries. Trust ownership of this sort is not uncommon. The agency problems emerge as the two classes of beneficiaries have claims on cash flows that occur at different times, with income beneficiaries having claims until “capital” is transferred to the capital beneficiaries. The agency problems that are discussed are dividends, risk shifting, capital structure, cost capitalization, and investment policy. In all cases agency problems arise, and in some respects the agency problems are more pervasive than in the more “orthodox” settings.
Open Access
Analysis of Change in Present Value Measurements
(Te Herenga Waka—Victoria University of Wellington, 2005) Bradshaw, John; Khanna, Bhagwan; Roush, Melvin; van Zijl, Tony
In recent years, the leading standard setters for financial reporting have shown an increasing preference for fair value measurement. However, present value is often the only acceptable method of estimating fair value and therefore the actual result of the swing to fair value is likely to be increased use of present value in financial reporting. This paper addresses the issue of interpretation of a change in present value between successive reporting dates and shows that the change can be analyzed by use of the familiar variance analysis framework widely used in management accounting.
Open Access
Auditor Independence and NAS: a Comparative Analysis of Selected Current Regulatory Frameworks
(Te Herenga Waka—Victoria University of Wellington, 2005) Islam, Ainul; van Zijl, Tony; Karim, Waresul
There is a widespread public perception that the provision of NAS undermines auditor independence. In order to protect auditor independence, the regulatory frameworks of many countries include regulations and guidelines which auditors are required to observe. This paper provides a comparative analysis of selected regulatory frameworks. Regulatory frameworks, with respect to independence, make distinctions between independence of mind and in appearance. It is clear from the analysis of the frameworks that the provision of NAS can threaten both independence of mind and in appearance. There are some NAS for which no safeguard seem to be adequate and which are therefore subject to prohibition. On the other hand, for some nonaudit services the threats are not so clearcut, and auditors are then required to apply professional judgment so that the seriousness of the threats is balanced against the effectiveness of specified safeguards.
Open Access
Board Ethics and Auditor Choice – International Evidence
(Te Herenga Waka—Victoria University of Wellington, 2010) Houqe, Muhammad Nurul; Dunstan, Keitha; Karim, AKM Waresul; van Zijl, Tony
This study examines whether firms' auditor choice relates reflects the strength of board ethics. Using a large sample of firms 132,853 firm year observations from forty-six countries around the globe. and controlling for a number of firm- and country-level factors, we find that firms in countries where “high board ethical values” prevail are more likely to hire a Big 4 auditor. We also find that the relation between board ethical values and auditor choice is mitigated by the firm's board size. These results establish an indirect link between board ethics and financial reporting quality through the firm's choice of auditor.
Open Access
Capital Gains and the Capital Asset Pricing Model
(Te Herenga Waka—Victoria University of Wellington, 2001) Lally, Martin; van Zijl, Tony
This paper shows that, in the presence of differential taxation of ordinary income and capital gains, use of the Officer (1994) version of the Capital Asset Pricing Model can result in significant misestimation of the cost of equity capital. In particular, with a high dividend yield, the cost of equity may be underestimated by four percentage points. Underestimation is of particular significance in the context of setting output prices for regulated utility firms.
Open Access
Deprival Value and Fair Value: a Reinterpretation and a Reconciliation
(Te Herenga Waka—Victoria University of Wellington, 2005) van Zijl, Tony; Whittington, Geoffrey
Two alternative measurement bases that have appeared in accounting standards, Deprival Value (sometimes called Value to the Business) and Fair Value, are explained and compared. They are then reconciled by making the following three adjustments to their conventional definitions. (1) In the case of Deprival Value, situations in which net realisable value exceeds replacement cost imply that there is a profitable redevelopment or redeployment opportunity, so that net realisable value is regarded as the appropriate measure of Deprival Value. (2) In the case of Fair Value, transactions costs (including installation and removal costs) are added to acquisition values and deducted from disposal values. (3) In the case of Fair Value, it is assumed that net realisable value represents the “highest and best use”, except when it is exceeded by both replacement cost and value in use. In the latter case, “highest and best use” (and therefore Fair Value) is inferred by assuming profit maximising behaviour by the owner. It is suggested that the resulting synthesis represents a method of current valuation which is consistent with the objective of measuring the asset in terms of the economic opportunities that are available to its current owner in the condition and location in which it is currently to be found.
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Differentiated regulation: the case of charities
(Te Herenga Waka—Victoria University of Wellington, 2014) Cordery, Carolyn; Sim, Dalice; van Zijl, Tony
The increasing number and influence of charities in the economy, allegations and evidence of fraud and mismanagement, and the need for information to inform policy, are all reasons for the establishment of charity regulators. Public interest and public choice provide underlying theories explaining charity regulation which aims to increase public trust and confidence in charities (and thus increases philanthropy), and to limit tax benefits to specific organisations and donors. Disclosure-based regulatory regimes are a common model for charities regulation in many jurisdictions. Nevertheless, these can be resource intensive for the regulator and regulated charities, and growing pressure on government budgets requires efficiencies to be found. This paper proposes regulation differentiated according to charities’ main resource providers. This could reduce cost and increase the regulator’s effectiveness through focusing effort. In addition, this differentiation segments charity types according to the theories that explain why these organisations form and operate. We demonstrate the feasibility of such segmentation by use of cluster analysis of data on New Zealand registered charities and show which charities could benefit from differentiated regulation.
Open Access
Due Process and the Adoption of IFRS in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2005) Bradbury, Michael; van Zijl, Tony
This paper reviews the decision to adopt IFRS in New Zealand and the subsequent decisions made on implementation of adoption. The emphasis of the review is on due process. The paper outlines the current regulatory structure for financial reporting in New Zealand, the role of due process and describes the due process requirements that applied in New Zealand prior to implementation of the decision to adopt IFRS. The paper describes how the decision to adopt IFRS was made, how the approach to implementation was determined and reviews the adequacy of the due process followed. We conclude that the limited due process followed for the decision to move to international financial reporting standards and for each individual IAS or IFRS was adequate. However, the actual method of converting international standards to New Zealand standards did not go through sufficient due process.
Open Access
The effect of Investor Protection and IFRS Adoption on Earnings Quality around the World
(Te Herenga Waka—Victoria University of Wellington, 2010) Houqe, Muhammad Nurul; Dunstan, Keitha; Karim, AKM Waresul; van Zijl, Tony
This study examines the effect of investor protection and IFRS on the quality of accounting earnings for forty-six countries around the globe. Two attributes of accounting earnings are studied: the magnitude of discretionary accruals, and the avoidance of loss reporting. The results suggest that IFRS adoption per se doest not lead to increased earnings quality, at least based on the earnings attributes studied in our study. Specifically, accounting earnings quality improves as investor protection regimes become stronger, but only for IFRS adopting countries, that is, the effect of investor protection is mediated through the adoption of IFRS. The results highlight the importance of accounting enforcement to financial reporting quality and the need for standard setters and policy makers to design mechanisms that will limit managers’ earnings management practices.
Open Access
Effects of audit quality on earnings quality and cost of equity capital: evidence from India
(Te Herenga Waka—Victoria University of Wellington, 2015) Houqe, Noor; Ahmed, Kamran; van Zijl, Tony
In this paper, using a large sample covering the 10 years from 1998 to 2009, we examine the role of audit quality in earnings quality (discretionary accruals and income smoothing) and cost of equity capital of Indian firms. We find evidence that firms employing high quality auditors experience higher earnings quality and lower cost of equity capital. We find that firms belonging to business groups have higher earnings quality and lower cost of equity capital than their non-business group counterparts. The results do not change after utilising alternative proxies for audit quality, earnings quality and cost of equity. Our findings contribute significantly to the literature on the role of audit quality as an effective monitoring mechanism as reflected in firm level earnings quality and cost of equity capital of listed firms in India which has distinct institutional features in relation to ownership structures and operations.
Open Access
Examining a positive psychological role for performance measures
(Te Herenga Waka—Victoria University of Wellington, 2011) Marginson, David E.; McAulay, Laurie; Roush, Melvin; van Zijl, Tony
Emerging evidence suggests that management control systems may generate positive psychological effects, leading to higher levels of managerial performance. We extend this literature by examining the extent to which (1) financial vis-à-vis non-financial measures and (2) diagnostic vis-à-vis interactive utilisation of performance measures may be associated with decreasing role ambiguity and increasing psychological empowerment with performance as the ultimate outcome variable. We find that the interactive utilisation of non-financial performance measures can be particularly important for generating a positive psychological experience and (indirectly) increasing performance. Our study contributes further evidence of the psychologically beneficial role played by management control systems.
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Governance of Tunnelling in Developing Countries: Evidence from Bangladesh
(Te Herenga Waka—Victoria University of Wellington, 2017) Tareq, Mohammad; Houqe, Muhammad Nurul; van Zijl, Tony
Tunnelling is a governance issue between controlling shareholders and minority shareholders in both developed and developing countries. However, most studies on tunnelling are in developed countries with the few exceptions of studies on China, India and Mexico. Using Oliver Williamson’s Market and Hierarchy model this paper analyses the suitability of the governance requirements on tunnelling in Bangladesh and reports on interviews with non-independent directors, independent directors, and audit committee members. The study thus identifies the limitations and factors that affect the implementation and effectiveness of the current governance requirements to constrain tunnelling in companies in Bangladesh.
Open Access
Government Quality, the Adoption of IFRS and Auditor Choice: A Cross Country Analysis
(Te Herenga Waka—Victoria University of Wellington, 2011) Houqe, Muhammad Nurul; van Zijl, Tony; Monem, Reza
We examine the association between country-level government quality and firms’ choice of external auditors. We use a firm’s choice of a Big 4 auditor as a proxy for the demand for high-quality financial reporting. Using a cross-sectional sample of 142,193 firm-year observations from 46 countries over 1998-2007, we show that government quality of a country has a significant positive effect on the likelihood of choosing Big 4 auditors by firms in that country. We also show that firms in countries with strong governments that have adopted IFRS are more likely to choose Big 4 than non-Big 4 auditors. To our knowledge, this is the first study of its kind to provide direct evidence on the role of government quality in firms’ choice of external auditors. The results provide insights for policy makers on the importance of government quality toward improving financial reporting quality in a country.
Open Access
Identifying Decision Useful Information With the Matrix Format Income Statement
(Te Herenga Waka—Victoria University of Wellington, 2007) Brown, Phil; Bradbury, Michael; van Zijl, Tony; Hancock, Phil; Woodliff, David; Tarca, Ann
We conduct an experiment to investigate the potential benefits of an alternative format for the income statement, the matrix format, initially developed by the IASB and UK ASB in their joint project on performance reporting. Sophisticated financial statement users (financial analysts and professional accountants) and less sophisticated financial statement users (MBA students) were asked to extract information from a set of financial statements that included an income statement either in the IAS 1 format or in the matrix format. We find that the matrix format improves the accuracy with which users extract financial information. This result is driven by greater accuracy, for all user groups, on ‘below-the-line’ items. Furthermore, despite lack of familiarity with the matrix format, its use did not appear to affect the time taken, the ease of extracting financial information, or users’ task completion confidence; further experience with the matrix format could lead to benefits along these lines as well. Our findings may assist the FASB and IASB in their joint project on financial statement presentation.
Open Access
The Impact of Default Risk on the Basu Measure of Accounting Conservatism
(Te Herenga Waka—Victoria University of Wellington, 2011) Wang, Richard Zhe; Ó hÓgartaigh, Ciarán; van Zijl, Tony
We show, analytically and empirically, that there is a positive correlation between default risk and the Basu measure of conservatism: the higher the default risk, the higher the bias in the Basu measure. We use the insight provided by our analysis to construct an improved version of the Basu measure, the Default-Adjusted-Basu (DAB) measure. The DAB measure adjusts for the effects of default risk on the Basu measure. Using Distance-to-Default as a measure of default risk, we contend that the DAB measure can substantially reduce the bias caused by default risk, and hence is a more robust measure of accounting conservatism than the standard Basu measure. We demonstrate that once one adjusts for the distance-to-default, the Basu conservatism coefficient is no longer positively correlated with leverage.
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The impact of intellectual capital on firm performance among R&D engaging firms
(Te Herenga Waka—Victoria University of Wellington, 2016) Ariff, Arifatul Husna Mohd; van Zijl, Tony; Islam, Ainul
This thesis investigates the impact of aggregate intellectual capital (IC), and its elements, human capital, structural capital and tangible capital, on firm performance. In addition, the study also examines the impact of past research and development (R&D) activity on the relationship between IC and firm performance. The study employs the original and modified Value Added Intellectual Coefficient (VAICTM) models to measure IC. Firm performance is measured from two different perspectives: market and financial. The study uses a sample of 1,328 firm-year observations drawn from multinational firms which engaged in R&D activity over the period 2006-2013 and were listed on the U.S. stock exchanges. Using ordinary least squares regression, the study confirms that aggregate IC has a significant positive impact on both the market and financial performance of firms. Human capital has no significant impact on market performance, but it has a significant positive impact on financial performance. Structural capital and tangible capital each have a significant positive influence on both the market and financial performance of firms. In addition, the study finds that past R&D activity has a significant positive impact on the relationship between aggregate IC and both market and financial performance. However, the study finds mixed results for the role of past R&D activity on the relationship between the IC elements and firm performance. The study contributes to the existing literature by providing empirical evidence on the impact of IC on firm performance among multinational R&D engaging firms. The study also adds to the literature by providing empirical evidence on the role of R&D activity in influencing the relationship between IC and firm performance and thus enhances the current understanding of the role of IC and R&D. In addition, the study contributes to the methodology by proposing a modification to the original VAIC model and empirically tests the resulting modified VAIC model. The study thus provides empirical evidence of the impact of IC on the market performance and financial performance of firms. This evidence should be useful to firms in developing their IC and R&D policies, to users of financial statements in evaluating the benefits from IC among R&D engaging firms, and also to accounting standard setters in identifying the information on IC that should be included in financial reports.
Open Access
The Influence of Board Structure on the Value of NZX Listed Firms and its Association with Growth Options
(Te Herenga Waka—Victoria University of Wellington, 2011) Dunstan, Keitha; Keeper, Trish; Truong, Thu Phuong; van Zijl, Tony
Our study examines the relationship between four indicators of board structure and firm value and the extent to which this relationship may be affected by the level of growth options relative to assets-in-place. These indicators are the level of accounting expertise, gender diversity, the level of independence and the size of the board. Using a sample of 543 firm-years covered by 125 firms listed on the New Zealand Exchange for the 1998-2007 financial years, we found that these board structure indicators together with the level of growth options significantly impact on firm value after effectively controlling for the endogeneity problem. Specifically, firms with a lower number of directors with accounting expertise and/or a higher number of female directors on the board have higher firm value. For firms with a higher level of growth options, a higher percentage of independent directors on the board and/or a larger board are more value relevant. Our findings related to board accounting expertise and board gender diversity particularly may have important implications for corporate regulators.
Open Access
The Influence of Board Structure on the Value of NZX Listed Firms and its Association with Growth Options
(Te Herenga Waka—Victoria University of Wellington, 2011) Dunstan, Keitha; Keeper, Trish; Truong, Thu Phuong; van Zijl, Tony
Our study examines the relationship between four indicators of board structure and firm value and the extent to which this relationship may be affected by the level of growth options relative to assets-in-place. These indicators are the level of accounting expertise, gender diversity, the level of independence and the size of the board. Using a sample of 543 firm-years covered by 125 firms listed on the New Zealand Exchange for the 1998-2007 financial years, we found that these board structure indicators together with the level of growth options significantly impact on firm value after effectively controlling for the endogeneity problem. Specifically, firms with a lower number of directors with accounting expertise and/or a higher number of female directors on the board have higher firm value. For firms with a higher level of growth options, a higher percentage of independent directors on the board and/or a larger board are more value relevant. Our findings related to board accounting expertise and board gender diversity particularly may have important implications for corporate regulators.
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Intellectual Capital Efficiency and Firm Financial Performance: Evidence from South East Asian Countries
(Te Herenga Waka—Victoria University of Wellington, 2017) Ariff, Arifatul Husna Mohd; Islam, Ainul; van Zijl, Tony
This study applies a modified version of the Value Added Intellectual Coefficient (VAIC) model proposed by Pulic (1998; 2000) to investigate the impact of IC on financial performance of listed firms in five South East Asian (SEA) countries: Indonesia, Malaysia, Philippines, Singapore, and Thailand over the period 2006 to 2013. The sample employed consists of 16,039 firm-year observations. Financial performance is measured using return on equity and return on assets ratios. The study employs the VAIC model to measure aggregate IC efficiency and its elements: human capital efficiency, structural capital efficiency and tangible capital efficiency. The test results indicate that aggregate IC has a positive and significant impact on financial performance of listed firms in the five SEA countries. The results also show that, among the components of IC, human capital and tangible capital both have positive and significant impact on financial performance of listed firm in the five SEA countries. However, structural capital has a negative impact on financial performance of firms in all SEA countries other than Thailand, which contradicts the theoretical expectation.
Open Access
Performance Measures and Short-Termism: An Exploratory Study
(Te Herenga Waka—Victoria University of Wellington, 2009) Marginson, David; McAulay, Laurie; Roush, Melvin; van Zijl, Tony
We examine the relationship between performance measurement systems and short-termism. Hypotheses are tested on a sample of senior managers drawn from a major telecommunications company to determine the extent to which the diagnostic and interactive uses of financial and non-financial measures give rise to short-termism. We find no evidence to suggest that the use of financial measures, either diagnostically or interactively, leads to short-term behaviour. In contrast, we find a significant association between the use of non-financial measures and short-termism. Results suggest that the diagnostic use of non-financial measures leads managers to make inter-temporal trade-off choices that prioritise the short term to the detriment of the long term, while we find interactive use is negatively associated with short-termism. We find an imbalance in favour of the diagnostic use over the interactive use of non-financial performance measures is associated with short-termism. Overall, findings highlight the importance of considering the specific use of performance measures in determining the causes of short-termism.