Abdullahi D. Ahmed

Is China's Western Region Development Strategy on Track? An assessment

Chinas government launched the Western Region Development Strategy in 2000 with the aim of boosting economic development in 12 provinces, municipalities and autonomous administrative regions in the western part of the country. This paper presents the results of an assessment of the progress made so far and makes suggestions for better performance in the future. We conclude that although the western region has experienced impressive rates of economic growth, regional disparities in China have continued to widen in spite of the western regional strategy. We also develop a regional growth model to determine the major drivers of regional economic growth in the western region of China. Furthermore, the sources of regional disparities are examined using Morduch and Siculars regression-based decomposition approach. These models are used for suggesting a more targeted package of regional development policies for the period beyond 2010.

Potential Impact of Financial Reforms on Savings in Botswana: an Empirical Analysis Using a VECM Approach

This paper attempts to briefly review the financial impact of the recent economic reforms in Botswana. In particular, it investigates the influence of these reforms on savings, and tests the financial repression hypothesis. The paper examines such effects through empirical examination using the Johansen VECM approach and annual data running from 1971 to 2003. While private savings have shown a remarkably increasing trend in recent years, our preliminary empirical results show that savings are positively related to real interest rates in Botswana. Additionally, while using a carefully constructed composite index and a considerable list of controlling variables, we observe a positive and significant link between private savings and the financial liberalization index. Finally, unlike other studies where cross-country time series data is utilized, of which the predicted results may fail to capture country-specific developments and institutional differences, this study aims to provide a reasonable country-level investigation.

Effect of corporate governance on ceo pay - risk taking association: empirical evidence from australian financial institutions

ABSTRACT:This study explores the impact of board structures on risk taking-CEO pay association in Australian financial institutions. Using a panel data of 45 listed Australian financial institutions for the period 2004–2015, we examine the empirical relationship between firms expected default probability and CEO pay. Our results show that deposit taking institutions with a greater number of nonexecutive directors on the board generally have an expected default probability (EDP) that is more sensitive to CEO short-term employee benefits. However, a lower response of EDP to changes in CEO short-term employee benefits in non-deposit taking institutions is observed. To a large extent, this phenomenon is explained by the existence of moral hazard problem in banking industry. As depositors are insured against losses, nonexecutive directors may fail to monitor executives taking on risky investments that generate short-term gains in order to boost their cash bonus and other short-term risk remuneration. Our results suggest that boards associated with more nonexecutive directors’ increase (reduce) the responsiveness of expected default probability to changes in CEO short-term employee benefits (long-term variable remuneration pay). We observe that Australian financial institutions with large boards are linked to EDP which is sensitive to both CEO short-term and long-term remuneration incentives. Institutions with larger boards motivate their CEOs to invest in high risk financial assets, consequently escalating the level of CEO risk-taking. Finally, independence of the board members plays a critical role in reducing the level of CEO risk-taking only if CEO remuneration is largely made of long-term incentives remuneration such as options and share restricted payments. In line with other studies from US, boards should use long-term incentives in CEO remuneration to reduce agency costs and increase firm value.

Do regulatory standards help align CEO compensation and banks performance association

This study aims to assess the impact of APS 510 standard on CEO remuneration-performance association in Australian Authorized deposits taking institutions (ADIs). Using panel data GLS and dynamic GMM estimation models, a key objective of this research is to investigate the role of regulatory standards on the empirical association between executive compensation and firm performance. The research uses data from 45 listed Australian financial institutions for the period 2004-2015. We observe no statistically significant evidence to show that CEO cash bonus is excessive in banking sector as claimed by various financial press and business media. Further analyses reveal the differing but substantial functions of APS 510 in shaping the association between a firm’s CEO short-term incentives and corporate performance depending on the nature and characteristics of the firm (ADIs vs non-ADIs). As the regulatory standard is legally binding for all ADIs and not necessarily for non-ADI companies, CEO’s annual variable remuneration for the ADI category is somehow lower. This implies that the standard plays a critical role in reducing the level of CEO short-term incentives in the ADI group of firms. Empirical results show no significant statistical influence of the standard in shaping the relationship between CEO long-term incentive and market based performance of the Australian banking system. Our findings here are consistent with prior studies in developed countries such as the US. Policy-wise, we conclude that regulators should encourage corporate board of firms to increase long-term incentives in CEO remuneration in order to align managements’ actions and shareholders interest of enhancing firm value.

Efficiency of Australian superannuation funds: a comparative assessment

Purpose - This study primarily aims at measuring efficiency of superannuation funds using Data Envelopment Analysis (DEA), using data related to financial performance of superannuation funds. The sample comprises 183 superannuation funds covering approximately 79% of the 231 largest APRA-regulated funds in 2012. The research covers a period of seven years from 2005-12. Our results indicate that most Australian superannuation funds are inefficient relative to the benchmark efficiency frontier based on efficient funds. The findings emphasise the importance of improving the efficiency of Australian superannuation funds by reducing overall fund expenses to narrow the gap in performance between efficient and inefficient funds. Design/methodology/approach - This study aims to contribute to policy, theory and practice in several dimensions. Member protection and the efficiency of the superannuation system are topical issues (Donald 2009). Despite its importance from a regulatory point of view, efficiency has only been discussed in relation to operational issues such as managing agency relationships, fees and charges, investment return or economies of scale. The relative efficiency of the Australian superannuation system from an economic productivity perspective has rarely been examined, except for a study by Njie (2006), where the Malmquist productivity DEA technique was used to measure the efficiency of Australia’s retirement income system. Findings - Most inefficient funds had very low efficiency scores and were fell into the lower quintiles such as Quintiles 4 (scored 0.200–0.399) and 5 (scored 0.001–0.199). Consequently, input reduction targets were significantly higher for these two quintiles. Similarly, input reduction targets were high under the period DEA estimates. In order to be comparatively efficient, Quintile 4 funds were required to reduce total expenses by 75% (–0.754) and volatility of return by 80% (–0.801). Similarly, Quintile 5 funds needed to reduce total expenses by, on average, 83% (–0.824) and volatility of return by 89% (–0.894). Research limitations/implications - As in other empirical research, this study also depended heavily on the data collected from the secondary sources such as APRA data base and other financial reports. The issues of measurement errors in data sources such as APRA data base are well documented (see, for example, Cummins (2012). This issue needs the attention of future research on the efficiency of superannuation funds. Practical implications - The findings on individual year DEA estimates indicate that most funds were inefficient due to high expenses. Therefore, mandatory disclosure of fees and charges in a comparable manner may be necessary to justify fee payments and to address transparency and accountability issues, which are critical issues identified by the Cooper Review and the academic literature (Australian Government 2014; Cooper et al. 2010; Gallery and Gallery 2006). Originality/value - This study contributes to the current literature on superannuation funds by investigating efficiency. As efficiency studies using DEA have not been conducted on the Australian superannuation industry, this study also contributes to the academic literature on DEA and its extensive applications to various economic sectors. Efficiency scores using DEA, ranking, trends and shifts in the efficiency frontiers could be obtained for Australian superannuation funds on an on-going or annual basis.

CORPORATE GOVERNANCE AND INSTITUTIONAL OWNERSHIP: A CRITICAL EVALUATION AND LITERATURE SURVEY

This paper aims to analyse how effective the role of institutional shareholders is in corporate governance by examining the association between the different types of institutional shareholders and earnings management. Many prior studies have investigated the nature of several corporate governance practices and mechanisms and how they exist to strengthen institutions, however, there have been questions related to the role of governance failures in preventing unethical behavior by top management. The recent financial and accounting scandals that have engulfed major financial companies in the United States and other developed countries have renewed the interest in corporate governance issues and the role of shareholders. This study provides critical reviews of the theoretical and empirical literature on the inter-relationship between different types and composition of shareholders and influences on corporate governance outcomes. We evaluate what we can say with confidence about the interaction between ownership structures and corporate governance. Overall, there is a consensus among researchers that institutional investors and other outside blockholders vote more actively on corporate governance amendments than non-blockholders to enhance profitability and market valuation of firms.