Hardjo Koerniadi

Corporate governance and risk-taking in New Zealand

We analyse the impact of firm-level corporate governance practices on the riskiness of a firm’s stock returns in a setting that can be considered as less conducive to managerial risk-taking. Our empirical evidence, based on a comprehensive sample of New Zealand firms, shows that firms with large boards are associated with lower levels of risk-taking, ceteris paribus. Furthermore, our results indicate that multiple large shareholders facilitate higher levels of risk-taking by the firm. Finally, our results also show that concentrated shareholdings of inside directors have a negative relation to risk-taking. Our findings are robust to controls for the three potential sources of endogeneity. Since prior work documents results consistent with the view that institutional and market environments largely determine governance outcomes, our work has implications for managers, investors and policy makers, particularly in less developed capital markets with weaker corporate takeover regimes and less performance-oriented managerial compensation.

Share Repurchases in New Zealand

In this paper, we investigate the New Zealand stock market reactions to both on-market and off-market share repurchase programmes for the period 1995–2004. Share repurchases have become more frequent in New Zealand in recent years, though the size and the number of repurchases are still small by international standards. The main reason appears to be the presence of the dividend imputation system which diminishes the tax consequences of cash dividends compared to capital gains. On the whole, we observe that the market reacts positively and significantly to the share repurchase announcements. The magnitude of average abnormal returns for the on- and the off-market repurchases on the announcement day are 3.25 and 3.12% respectively. We further observe the reasons companies undertake stock repurchase are consistent with the investment and free cash flows agency hypotheses.

Corporate governance, financing patterns and the cost of capital: evidence from New Zealand companies

In this paper, we examine the effects of corporate governance on the financing policies of New Zealand firms for the period 2004-2008. Using a comprehensive corporate governance index and its sub parts, and employing the Fama and French (1999) methodology of financing model of firms, we find that firms with weak corporate governance have more debt in their capital structure and higher cost of capital compared to firms with strong governance. We further observe that firms with different levels of corporate governance quality use different corporate governance mechanisms in relation to their financing policies, more specifically different leverage levels are used in conjunction with governance aspects such as compensation policy and shareholder rights.

Accrual or Cash Flow Anomaly? Evidence from New Zealand

This paper investigates the presence of the accrual and the cash flow anomalies in the New Zealand stock market for the period of 1987 to 2003. We observe insignificant evidence of the accrual anomaly but find strong evidence of the presence of the cash flow anomaly. However, from 1987 to 1992 – a period before the introduction of the Companies and the Financial Reporting Acts 1993 – the presence of the accrual anomaly was statistically significant suggesting that the introduction of the FRA had a significant impact on the occurrence of the anomaly. We observe further that firms with high discretionary accruals experience significant negative future stock returns. This evidence is consistent with the notion that managers of these firms engage in earnings management.

The Role of Accruals as a Signal in Earnings and Dividend Announcements: NZ Evidence

In this study we examine whether managers deliberately use accruals to convey information regarding firm future profitability. We use contemporaneous earnings and dividend announcement data as our research setting, as this setting reduces the possibility of opportunistic income smoothing by managers and hence increases the validity of the inference on the accrual signaling hypothesis. Employing New Zealand data from 1992 to 2003, we find evidence consistent with managers using both accruals and changes in dividends to communicate private information regarding firm future profitability to the market. In particular, we observe that the markets reaction to dividend increase announcements is significantly positive. More importantly, we find that dividend-increasing firms report positive accruals that are positively correlated with future profitability. This finding is robust to performance, growth, and post-earnings announcement drift effects.

Earnings management and the market performance of stock dividend issuing firms: NZ evidence

Purpose - The purpose of this paper is to extend the literature on earnings management by examining whether stock dividends provide management with an incentive to manipulate earnings. Design/methodology/approach - This paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion. Findings - Stock dividend issuing firms increase accruals substantially in the issue year followed by poor earnings and stock price performance in the subsequent year. More importantly, discretionary accruals of stock dividend issuing firms are negatively correlated with the declines in both future earnings and abnormal stock returns. Originality/value - This paper examines the hypothesis that stock dividend firms engage in earnings management.

Corporate Governance and the Variability of Stock Returns

In this paper, we document the beneficial impact of firm level corporate governance practices on the riskiness of firms’ stock returns. Using a self-constructed corporate governance index, we show that well-governed New Zealand firms experience lower levels of unsystematic risk, ceteris paribus. In particular, our results show that corporate governance components such as board composition, shareholder rights, and disclosure practices are associated with lower levels of unsystematic risk.

The role of accruals as a signal in earnings and dividend announcements

Purpose – The purpose of this paper is to examine whether managers deliberately use accruals to convey information regarding firm future profitability.Design/methodology/approach – The paper uses contemporaneous earnings and dividend increase announcements in New Zealand as the research setting. This setting reduces the possibility of opportunistic income smoothing by managers and, hence, increases the validity of the inference on the accrual signaling hypothesis. The paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion.Findings – The paper finds evidence consistent with managers using both accruals and changes in dividends to communicate private information regarding firm future profitability to the market. In particular, dividend‐increasing firms are observed to report positive accruals that are correlated with the positive market reaction to dividend increase announcements and future profitability. These findings...

Natural disasters: blessings in disguise?

This study examines the impact of natural disasters on stock market returns and on industries that are likely to be affected by such disasters. We find that different natural disasters have different effects on stock markets and industries. Our evidence suggests that while earthquakes, hurricanes and tornadoes could negatively affect market returns several weeks after the events, other disasters such as floods, tsunamis and volcanic eruptions have limited impact on stock markets. We also find that construction and materials industry is generally positively affected by natural disasters but non-life and travel industries are likely to suffer negative effects.

Testing the Information-Based Trading Hypothesis in the Option Market: Evidence from Share Repurchases

The informed options trading hypothesis posits that option prices lead stock prices. In this paper, we extended the research on this hypothesis to open-market share repurchases. Empirical tests showed that the implied volatility spread was not significantly related to buy-and-hold abnormal stock returns. However, further evidence reveal a significant relationship between implied volatility spread and subsequent stock return volatility around open-market share repurchase events. We concluded that option traders have private information on the volatility of stock returns and superior information processing ability that accounts for prescient pricing behavior in options relative to stocks.