School of Accounting and Commercial Law – Te Kura Kaute, Ture Tauhokohoko: Centre for Accounting, Governance and Taxation Research

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See the Centre for Accounting, Governance and Taxation Research website for more information about the centre or the School of Accounting & Commercial Law website for their degrees, people, courses, contact details, news and events, and research.

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Now showing 1 - 20 of 95

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
Meta-analysis of the Impact of Adoption of Ifrs on Financial Reporting Comparability, Market Liquidity and Cost of Capital
(Te Herenga Waka—Victoria University of Wellington, 2021) Opare, Solomon; Houqe, Noor; Van Zijl, Tony
A large number of empirical studies have addressed the effects of adoption of IFRS, but the results have been mixed. We use a meta-analysis of 56 empirical studies with 1,265 effect sizes to determine the impact of adoption of IFRS on financial reporting comparability, market liquidity, cost of equity, and cost of debt. This approach provides an objective view of the empirical results, in contrast to narrative reviews which offer subjective conclusions. We find that IFRS adoption has increased financial reporting comparability, market liquidity, and reduced the cost of equity. For cost of debt, a decrease is observed only for voluntary adoption. Our meta-regression analysis explains the variation in the observed effect of adoption of IFRS across mandatory and voluntary adoption of IFRS, and choice of measures, control variables, estimation methods, and the strength of the empirical results. We emphasise the importance of these study characteristics and call for further studies focussing on the cost of debt and also studies using recent data to reflect the changes in IFRS. This study should be of interest to regulators and policymakers as they are expected to assess the impacts of adoption of IFRS.
Open Access
Reporting Service Performance – A Message in a Bottle?
(Te Herenga Waka—Victoria University of Wellington, 2020) Dormer, Rodney; Jahan, Mosammet Asma
Purpose This paper asks what evidence is provided, in the annual reports of New Zealand’s central government departments, of the efficiency and effectiveness of their performance. Approach This study reviewed performance indicators presented in the annual reports by the 28 central government departments of New Zealand for two consecutive years 2015/2016 and 2016/2017. The data were extracted from the Statement of Performance/Summary of Performance, accompanying narratives, highlights and management (CEO) explanations within the annual reports of these departments. An analysis of this information was conducted to determine the type, extent, mix and quality of performance information to indicate organizational performance in terms of efficiency (the relationship between inputs and outputs) and effectiveness (the relationship between outputs and outcomes). Value The paper’s contribution lies in its focus on the performance information provided by individual government departments. In particular, it reveals a paucity of information in respect of the cost, quantity and quality of the outputs delivered by those departments. In acknowledging definitional and measurement problems associated with both outputs and outcomes, it argues for a reconsideration of the role of annual reports in a more flexible and citizen-driven system of public accountability.
Open Access
Accountability and Public Governance in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2018) Dormer, Rodney; Ward, Sarah
This paper provides an insight into an already very substantial, but increasing, body of literature relating to accountability and public governance. Given the size and diversity of that literature what follows is a summary of the main themes or challenges that are currently emerging. Within the literature there are numerous attempts to provide a definition of the concept of accountability. The dominant, economically framed, discourse is reflected in Bovens (2007) frequently cited definition as: … a relationship between an actor and a forum, in which the actor has an obligation to explain and justify his or her conduct, the forum can pose questions and pass judgement and the actor may face consequences. (p. 450) Thus New Public Management models of public governance emphasise hierarchical arrangements of contractual, or quasi-contractual, relationships between a principal and an agent. However, in the twenty-first century new models are emerging that seek to respond to the challenges of heterarchical, networked organisational arrangements. Central to these challenges is “the problem of many eyes” as actors are confronted with multiple forums with different objectives and expectations and differing levels of power. Accountability is not then simply vertical, but is also horizontal and diagonal. To the extent that public governance moves beyond accountability for inputs and outputs, to accountability for outcomes (or results) further challenges of measurement and attribution arise. Again, the literature on performance measurement in the context of the public sector, particularly on the difficulties of defining and measuring performance, is very extensive. But whilst for some functions of government it may be possible to pre-define and subsequently measure both the work and desired results involved, for many functions that is not the case (Wilson, 1989). The practical result has been a continued focus on, management of, and accountability for inputs. Even when able to be measured, the results that governments seek to achieve are seldom the consequence of the activities of a single agency and will seldom be realised in the context of a single budgetary horizon, electoral cycle, or even a generation. As Lowe (2013) has suggested: The key conceptual flaw of this approach is that it is based on the idea that outcomes are the result of a linear process from problem, through intervention to positive outcome. (p.214) To the extent that cause and effect is multi-systemic involving the contributions of a number of, government and non-government, organisations, models accommodating joint accountability are required. Given the plausibly inequitable nature of a model in which individual contributions can not be identified, understanding the distinct but inter-related nature of accountability and responsibility becomes important. A further challenge to the dominant conception of accountability lies in its utilitarian conception of the natural world as a series of resources able to be owned (by individuals) and utilised to provide services and benefits to humans. However, alternative cultural perspectives, including that of te Ao Māori, imbue elements of the environment with a life force, enduring identity and rights. As such they are also due accountability. Such conceptions also inform an increasingly important broadening of the, normally economically framed and financially defined, judgements of organisational (and governmental) performance. They also involve a less transactional and longer-term perspective that encompasses the stewardship role of government to pass on to future generations a strong economy, well-functioning society and a healthy environment. A focus on societal and environmental, as well as economic, criteria is not new but has been given more currency by the United Nations Development Goals, the Global Reporting Initiative and the International Integrated Reporting Council. Broader conceptions of wellbeing and thus a broader framework by which governments should be held accountable, have been discussed by Sen (as basic freedoms) and Nussbaum (as capitals). They have also informed the development of the New Zealand Treasury’s Living Standards Framework. Although, arguably the operational and accountability impacts of that framework have, as yet, been limited, recent announcements by the new Government suggest that may change. Finally, the challenges to accountability in an increasingly dynamic digital environment include: • opportunities to use different forms of information, including narrative and pictures, delivered in a range of different ways; • rather than the passive provision of information, opportunities for public agencies to engage in participatory process that support a well functioning democracy; • the ability to both broaden the scope and accelerate the speed of those processes; and • the potential to facilitate distributed governance across government agencies and between those agencies and service providers in the community and private sectors. As noted, this paper provides an overview of the key challenges currently emerging from the substantial literature on accountability and public governance. It does not propose any solutions for those challenges but will hopefully support a constructive debate on how systems of public accountability might be designed differently in the future.
Open Access
Carbon Risk and Dividend Policy in an Imputation Tax Regime
(Te Herenga Waka—Victoria University of Wellington, 2017) Nguyen, Justin Hung; Balachandran, Balasingham
Australia ratified the Kyoto Protocol in December 2007, which mandates the country to reduce carbon emissions, thereby exogenously affecting firms in highest-emitting industries, or polluters. We examine the role of carbon risk in dividend policy and how this effect varies as between imputation (paying franked dividends) and classical (paying unfranked dividends) tax environments in the unique experimental setting in Australia. We find that the probability of paying dividend and dividend payout ratio are lower for polluters relative to non-polluters subsequent to the ratification. We further document that the post-Kyoto dividend reduction of polluters is driven by their relative increase in earnings uncertainty. However, the negative effect is weaker for firms that pay franked dividends than otherwise. The evidence suggests a causal influence of carbon risk on firm dividend policy, and highlights the significance of imputation tax environment on the impact of carbon risk on dividend policy
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Economic Policy Uncertainty And Corporate Cash Holdings
(Te Herenga Waka—Victoria University of Wellington, 2017) Duong, Huu Nhan; Nguyen, Justin Hung; Nguyen, My; Rhee, S. Ghon
We find that economic policy uncertainty is positively related to cash holdings. This positive relation is attributed to financial constraints that emerge as a new and dominating channel through which policy uncertainty affects corporate financing policies. Neither a delay in investment nor a reduction of the disciplining effect from M&A activities explains this positive relation. Increasing cash holdings during the period of high policy uncertainty contributes to firm excess returns and mitigates the negative impact of policy uncertainty on investment.
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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.
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Punishment of Bribery and Corruption: Evidence from the Malaysian Judicial System
(Te Herenga Waka—Victoria University of Wellington, 2017) Idrus, Muhammad Arif; Houqe, Muhammad Nurul; Bui, Binh; van Zijl, Tony
We investigate the judicial outcomes of crimes involving bribery and corruption in the context of the Malaysian judicial system. Using a sample of 1869 court cases over the period 2006 to 2013, we find that ‘white-collar’ workers, politically connected offenders, government employees, female offenders, indigenous Malaysians (Bumiputera) and private attorney offenders receive more lenient treatment compared to others. Evidence is also found that prior conviction of the offender and the seriousness of the offencee play significant roles in determining the fines and imprisonment of the offender. Moreover, young offenders receive harsher sentences compared to older offenders in terms of jail sentences but young offenders receive lower fines compared to older offender. We also find that more educated offenders receive more fines but fewer jail sentences. Our findings clearly suggest that not everybody is equal in the eyes of the Malaysian judicial system.
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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
Equity crowdfunding in New Zealand: a progressive experiment
(Te Herenga Waka—Victoria University of Wellington, 2016) Keeper, Trish
When the first tranche of provisions of the Financial Markets Conduct Act 2013 (‘the FMC Act’) came into force on 1 April 2014, a new licensing regime for crowdfunding service providers (‘CSPs’) was introduced into New Zealand law – one of the most progressive and innovative operating in the world today. The regime works on the basis that an offer of financial products to an investor does not require the FMC Act's standard disclosure documents necessary for an initial public offering, if the offer of financial products is by, or through, a licensed CSP and the offer is under the market service licence held by the CSP. The paper starts with an overview of the nature of equity crowdfunding and how it implicates securities law. It then briefly outlines how this activity was regulated in New Zealand previously and discusses how the new regulatory framework operates. The final part of the paper describes how the crowdfunding markets have developed in the last two years and identifies future developments and potential threats to the operation of New Zealand’s crowdfunding regime.
Open Access
Value Relevance of Environmental, Social, and Governance Disclosure
(Te Herenga Waka—Victoria University of Wellington, 2015) Zuraida, Zuraida; Houqe, Noor; van Zijl, Tony
This paper investigates the impact of Environmental, Social, and Governance (ESG) disclosure by companies around the world on market value. Using a large sample of non financial companies listed in 38 countries during the period 2008–2012, we test for value relevance by employing the modified version of the Ohlson (1995) model developed by Collins, Maydew, and Weiss (1997). We find support for the value relevance of disclosure of ESG both in aggregate form and for its individual components. These findings support the expectation of disclosure theory that disclosure of relevant information (such as ESG) has a positive impact on value. The results are robust to several alternative specifications. Consistent with the finance literature on the impact of legal origin (La Porta, Lopez de Silanes, & Shleifer, 2006; La Porta, Lopez de Silanes, Shleifer, & Vishny, 1998, 2000, 2002), the results for ESG disclosure are stronger in common-law countries. Our results provide new evidence for researchers, investors, and policy makers of the value relevance of ESG disclosure in a broad international setting. The evidence shows that globally investors benefit from the disclosure of both aggregate ESG and the individual factors and this supports regulators in pushing companies to provide additional ESG information.
Open Access
Secrecy and Mandatory IFRS Adoption on Earnings Quality
(Te Herenga Waka—Victoria University of Wellington, 2015) Houqe, Noor; Monem, Reza M.; Tareq, Mohammad; van Zijl, Tony
This study examines the effect of mandatory IFRS adoption on earnings quality in countries which exhibit high financial secrecy. Earnings quality is proxied by signed abnormal accruals and earnings conservatism. Using 19,324 firm-years from 14 countries over the period 1998-2011, we find that firms in a high-secrecy country tend to report higher abnormal accruals and earnings conservatism, which results in lower earnings quality. On the other hand, we find that mandatory IFRS adoption improves earnings quality by decreasing abnormal accruals and earnings conservatism. Our study provides evidence of the interaction between national culture, as indicated by secrecy, and IFRS adoption and helps to explain differences in earnings quality across different jurisdictions following IFRS adoption.
Open Access
Are All Independent Directors Created Equal? Do Their Professional Backgrounds Influence Firms’ Financial Disclosures? Evidence From Biotechnology Firms
(Te Herenga Waka—Victoria University of Wellington, 2015) Enache, Luminita; Parbonetti, Antonio; Srivastava, Anup
The empirical evidence on the association between board structure and firms’ voluntary disclosures is mixed and controversial. We extend the literature by arguing that independent directors do not represent a homogeneous group of people, as previously considered. We hypothesize that the professional backgrounds of independent directors shape their assessments of costs and benefits related to disclosure of information that potentially reduces agency costs but also lessens firms’ competitive advantages. Using hand-collected data from a sample of biotechnology firms, we find results consistent with this idea. Particularly, firms whose independent directors provide links to the wider social community, but lack functional or business experience, more frequently disclose proprietary information. We find opposite results for the firms whose independent directors possess significant functional expertise. We conclude that all independent directors are not equal in their influence on firms’ disclosure policies. Our study has several policy implications.
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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
Business strategy and earnings quality
(Te Herenga Waka—Victoria University of Wellington, 2013) Houqe, Muhammad Nurul; Kerr, Ryan; Monem, Reza
Using the Miles and Snow (1978) strategy typology, this study investigates whether business strategy is associated with the quality of reported earnings. In a sample of U.S. listed firms, we predict and find that defender-strategy firms are associated with higher levels of earnings management and prospector-strategy firms are associated with higher levels of accounting conservatism. However, this relation between business strategy and earnings quality is altered during high and low economic growth periods. In high-growth periods, while prospector firms exhibit lesser accounting conservatism, defender firms exhibit lesser earning management. In low-growth periods, the prospector firms become more conservative in reporting while the defender firms engage in more aggressive earnings management. Our findings provide direct evidence of the link between business strategy and earnings quality.
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What drive a long-term relationship in microcredit? Insights from a cambodian microfinance institution
(Te Herenga Waka—Victoria University of Wellington, 2013) Lanzavecchia, Alberto; Enache, Luminita
This article examines the determinants of the nominal value of loans in microcredit and the factors that drive long-term relationship banking. The dataset is drawn from primary data gathered from 216 randomly selected borrowers in a Cambodian microfinance institution. Analysis is performed using an OLS regression model. The results confirm positive and significant impacts of real estate assets and loan purposes on the amount borrowed and a negative impact of being single as a civil status. Long-term relationships are positively affected by: age of borrower and purpose of loan; and negatively affected by female gender. Contrary to general belief that microcredit is targeted to the “poorest of the poor”, a new market segment in microcredit was discovered within which MFI might target low-income/asset backed clients, granting loans on a “sustainable” basis, by applying the fundamental criteria of commercial banking: assessing credit worthiness and loss given default. Key
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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Forecasting New Zealand Corporate Failures 2001-10: Opportunity Lost?
(Te Herenga Waka—Victoria University of Wellington, 2012) Van Peursem, Karen; Chan, Yi Chiann
Knowing whether an organization will fail is useful information for investors and other stakeholders. Looking to 36 New Zealand corporate failures (2001-2010), we find that anticipation of their demise was not clearly signalled in the public media. The question then emerges as to whether better forecasts of impending failure could have been derived from information that was publicly available at the time. The aim of this project is to identify the potential for having better anticipated these failures, and to consider implications of that found. Selecting thirteen indicators and three models from the literature, 25 failing and a matched 25 non-failing companies are compared using data up to three years prior to failure. Findings from ANOVA and Chi-Square tests reveal a majority of significant differences which grow closer to failure dates. We conclude that while using such information would have revealed indications of problems for individual companies, definitive assertions of impending failure would not have been justified. Nonetheless, corporate failure forecasts could have been of benefit to users, as long as such forecasts had been qualified as ‘concerns’.
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 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.