Fauziah Md. Taib

Accounting for Goodwill: An Examination of Factors Influencing Management Preferences

Abstract This paper investigates factors that influenced the position of managements of UK-listed companies in the heated debate that surrrounded proposals for a new standard on goodwill accounting, i.e. the factors influencing whether managements preferred immediate write-off or capitalisation-based approaches. The factors investigated are derived from contracting cost theory, and include those associated with debt covenant restrictions and profit- based management schemes. They also include non-agency contracting costs. A key feature of the design is that, compared to prior research, we specify more rigorously circumstances where such contracting cost effects are, or are not, likely to be binding. In addition, the paper investigates the effects on management preferences of their beliefs about revisions in market perceptions of their companies resulting from changes in goodwill accounting. Our results support certain contracting cost-based hypotheses, but they also indicate that management beliefs about changes in market perceptions of their companies constitute a strong influence on their preferences.

It Pays to Be an Executive in Malaysia

Malaysian corporate sector is characterized by an insider system of corporate governance and induced the alignment problems between majority shareholders and the minority group. This paper investigates if there is an evidence of moral hazard behaviour being practiced in the executive remuneration decision. A match pair methodology is employed to isolate the effect of ESOS adoption from the usual motivations when deciding executive remunerations. Results suggest that while the amount of remuneration is directly linked to size of firms suggesting efficient and rational decision rather than on performance (profitability). The moral hazard behaviour is more evident when firms reward their executives even more in times of lower profitability or more losses over a longer period. The practice is more apparent among family owned firms not adopting ESOS. Though there is evidence of weak monitoring by government, it is not enough to ward off the insider pressures for personal gains.

The Effects of Ownership Structure and Monitoring Mechanisms on Earnings Quality and Cost of Equity

This paper examines the relationship between ownership structure (cash flow/voting rights and type of ultimate controlling party), monitoring mechanisms (audit committee and substantial shareholding), various measures of earnings quality and the cost of equity as a form of market assessment of information risk. There is no evidence that ownership structure affects earnings quality and the cost of equity. However, the significant association between substantial shareholding and both earnings quality and cost of equity suggests that substantial shareholding plays a monitoring role. Substantial shareholding has also a role in increasing information flow to the public i.e in reducing information risk and thus is priced by the market. In contrast, the market seems to be indifferent with the rule based mechanism of audit committee. The results suggest that companies just about satisfy the minimum requirement for audit committee whose monitoring role is not evident. This has an important implication on the relative emphasis given by regulators on market and rule based mechanisms.