Keitha Dunstan

Corporate Governance in Bangladesh: Link between Ownership and Financial Performance

This paper investigates empirically the effect of board ownership on firm performance in Bangladesh. By estimating single equation and simultaneous equation models on an unbalanced pooled sample of listed firms, it offers some new insight into the ownership-performance link in Bangladesh. Building on extant literature, it examines the ownership-performance relationship in an emerging market economy considering ownership as exogenous and as endogenous. The latter approach is favoured as recent empirical evidence shows that ownership and performance are endogenously determined and there is either a reverse-way or two-way causality relationship between the two. While OLS regression analysis indicates a linear and non-linear relationship between board ownership and performance, this disappears when 2-SLS estimation of a simultaneous equation model is carried out. Instead, a reverse causality relationship emerges. Other governance and control variables appear to have effects consistent with the literature. These results suggest a need to strengthen the internal control mechanisms within listed firms in Bangladesh. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Respondent Lobbying in the Australian Accounting Standard‐setting Process: ED49 – A Case Study

Aims to contribute to the understanding of the Australian standard‐setting due process. Analyses submissions made on Exposure Draft 49 Accounting for Identifiable Intangible Assets (ED49) as a case study of the strategies employed by lobbyists in their attempt to influence the accounting standard setters. Previous studies on respondents′ submissions have ignored the possibility that, in responding to exposure drafts, lobbyists are provided with a means of persuasion in excess of casting votes. Employs a form of content analysis to study the political process of standard setting. The results suggest that respondents on ED49 attempted to weight their lobby positions with the use of supporting arguments that utilized conceptual and/or economic consequences rationale and presented positions of differing strengths.

Earnings Quality and the Adoption of IFRS-Based Accounting Standards: Evidence from an Emerging Market

Purpose - This study aims to investigate the differences in earnings quality of Malaysian companies after the adoption of IFRS-based accounting standards named FRS. Design/methodology/approach - It is hypothesize that under the new set of accounting standards, the quality of earnings reported by these companies is relatively higher. Specifically, the study tests whether the level of earnings management is significantly lower after the adoption of IFRS, and reported earnings is more value relevant during the IFRS period. This study uses a large sample of 4,010 observations over a three-year period before and a three-year period after the adoption of the new set of accounting standards. Findings - The results show that IFRS adoption is associated with higher quality of reported earnings. It is found that earnings reported during the period after the adoption of IFRS is associated with lower earnings management and higher value relevant. Originality/value - The results of this study contribute additional evidence to the literature on earnings quality and the impact of IFRS adoption. As most of the existing studies on earnings quality and IFRS have been conducted on data from the U.S and European countries, this study fills a gap in the existing literature by studying the effect of adoption of IFRS on earnings quality in an emerging market.

Ownership Structure and Corporate Performance: Evidence from Bangladesh

This paper models the corporate ownership and performance relationship in Bangladesh listed firms using a simultaneous equations approach. Consistent with contemporary literature a “reverse-way” causality relationship between the two is documented. Using an unbalanced pooled sample of 660 firm-years, our results suggest that ownership does not have a significant impact on performance (Tobins Q or ROA). However, performance does appear to have a significant negative impact on ownership. With few exceptions, other governance and control variables appear to have significant effects on both performance and ownership. These results imply that despite significant governance differences between Bangladesh and developed market economies there are strong similarities in “internal governance mechanisms” and the implications of agency theory.

Board Composition, Non-Executive Directors' Characteristics and Corporate Financial Performance

ABSTRACT In the aftermath of the corporate excesses of the 1980s, the performance of boards of directors has come under increased scrutiny. A number of professional and regulatory committees have addressed the issue of board performance and some have recommended that companies should appoint a board of directors having a majority of non-executive directors, with an appropriate mix of experience. In contrast, empirical evidence casts doubt on whether non-executive directors improve financial performance and suggests that the value of non-executive directors differs across companies. This study examines the composition of boards of directors and the personal characteristics of their non-executive directors, for a sample of eighty-six Australian listed public companies, and investigates whether these factors are associated with financial performance. Boards were found, on average, to have a majority (greater than 50%) of non-executive directors with a majority of those non-executive directors holding degree...

Constituent Participation in the Australian Public Sector Accounting Standard-Setting Process: The Case of ED 55

The Australian public sector has recently undergone a period of intense reform including a comprehensive reform of financial reporting policies. A major aspect of this reform is the involvement of the Australian accounting profession in the formulation of financial reporting standards through the Public Sector Accounting Standards Board (PSASB). Despite this extensive change, scant research has examined constituent participation in the Australian public sector accounting standard-setting ‘due process’. This paper considers the regulatory model adopted for accounting standard-setting in the public sector in Australia and identifies the implications of this model for constituent access to the ‘due process’. In particular, the co-operation between the PSASB and the various regulatory bodies in each Australian jurisdiction suggests that these bodies may have more direct influence over the standard-setters than other constituents. The submissions made on ED 55 Financial Reporting by Government Departments are examined as a case study of the ‘due process’ as it operates in the public sector. Different constituent groups were found to respond in varying proportions, to hold conflicting positions on some issues contained in ED 55 and to use different strategies to present these positions. The research identifies a lack of input by the major group affected by the proposed standard, the account preparers (government departments). In addition, account preparers which did respond to ED 55 were found to use less sophisticated lobbying strategies than other respondents who weighted their responses by commenting on a greater number of issues and by supporting their position with conceptual arguments. These results support the contention that some constituents have favourable access to the ‘due process’ and that standard-setters may not have received all pertinent information from affected and/or knowledgeable constituents.

Public Regulatory Reform and Management Earnings Forecasts in a Low Private Litigation Environment

We examine the impact of continuous disclosure regulatory reform on the likelihood, frequency and qualitative characteristics of management earnings forecasts issued in New Zealand’s low private litigation environment. Using a sample of 720 earnings forecasts issued by 94 firms listed on the New Zealand Exchange before and after the reform (1999–2005), we provide strong evidence of significant changes in forecasting behaviour in the post-reform period. Specifically, firms were more likely to issue earnings forecasts to pre-empt earnings announcements and, in contrast to findings in other legal settings, those earnings forecasts exhibited higher frequency and improved qualitative characteristics (better precision and accuracy). An important implication of our findings is that public regulatory reforms may have a greater benefit in a low private litigation environment and thus add to the global debate about the effectiveness of alternative public regulatory reforms of corporate requirements.

Local Government Accounting Standard-setting in Australia: Did Constituents Participate?

The Public Sector Accounting Standards Board (PSASB) has developed accounting standards for the public sector in Australia. A procedural ‘due process’ has been developed to protect the openness, neutrality and independence of Australian standard-setting both in the private and public sectors. Prior research into constituent participation in the ‘due process’ for specific cases in the public sector has raised doubts as to whether the ‘due process’ operated in an open, neutral and independent manner. It has found that account preparers were under-represented in their responses and used less sophisticated lobbying strategies than other respondents. The research also concluded that some constituents had favourable access to the ‘due process’, and that standard setters did not receive all pertinent information from constituents. This paper examines constituent participation in the ‘due process’ for the first public sector accounting standard, that for local government (AAS 27). The submissions made on the exposure draft preceding the standard – ED 50 – have been analysed using content analysis. The findings suggest that account preparers were well-represented in their responses and adopted the lobbying strategy of weighting their responses with supporting argument for the most controversial issues. Contrary to prior research, the paper concludes that in the case of ED 50 there is no evidence that the ‘due process’ failed to operate in an open and neutral manner.

Co-deterministic relationship between ownership concentration and corporate performance: Evidence from an emerging economy

Purpose - The purpose of this paper is to test whether dominant shareholder(s) of a firm enhance performance in Bangladesh and thus examines the arbitrary moves by the regulatory bodies, in the name of promoting “good corporate governance”, to restrict ownership concentration. Design/methodology/approach - Building on the established literature, a simultaneous equations approach is applied to model the relationship between ownership concentration and performance and is tested on a sample of 567 observations on firms listed on the Dhaka Stock Exchange over a seven-year period. The two equations model consists of firm performance and ownership concentration as endogenous variables along with other governance variable. Findings - The results suggest a significant positive co-deterministic relationship between ownership concentration and firm performance indicating that ownership concentration and firm performance simultaneously impact each other. It suggests that the ownership restriction imposed by the Securities and Exchange Commission is unjustified and detrimental to firm performance/growth in emerging countries such as Bangladesh. Practical implications - This new evidence from an emerging market enhances our understanding of corporate governance in Asian countries. The study has implications for stakeholders, regulators and policy makers to revisit their attempt to limit founder-family ownership holdings. Instead, their aim should be to balance the home-grown unique features, such as a Top-1 dominant shareholder, with Western governance mechanisms. Originality/value - The paper is the first to consider Top 1 shareholders ownership as the measure of ownership concentration, which is an important feature of the corporate sector in emerging markets. In emerging markets, founder-family ownership concentration acts as an alternative governance mechanism substituting for strong and effective legal backing and other market-driven monitoring mechanisms.

Accounting for goodwill in an Australian context

This article is motivated by the international controversy surrounding the regulation of accounting for goodwill. Recent moves for regulatory change in the United Kingdom by the Accounting Standards Committee, and in the international arena through the International Accounting Standards Committee (IASC), have focused attention on the long-running goodwill debate. The British and international accounting regulators have made proposals consistent with the more conservative goodwill accounting rules in the United States and in Australia. The history of accounting for goodwill in Australia provides an opportunity to examine the impact of accounting regulation in promoting uniformity of practice. This paper documents and compares pre- and post-professional regulation (AAS 18) practice and includes an examination of poststatutory regulation (ASRB 1013) practice. The results of this study may be of interest to the accounting profession and to international regulators of accounting, as it provides information regarding the effectiveness of standard setting for goodwill accounting in the Australian context. Regulators in the United Kingdom, in particular, may be able to use such information as input into the decision making process with respect to the proposals for accounting for goodwill. Accounting standards for the corporate sector in Australia emanate from two sources: the professional bodies and the Accounting Standards Review Board (ASRB). Historically, it has been the two professional bodies (the Australian Society of Accountants, now the Australian Society of Certified Practising Accountants, and the Institute of Chartered Accountants), through their joint standard-setting body, the Australian Accounting Research Foundation (AARF), which have issued accounting standards. At time of writing, 28 of these Australian Accounting Standards (AASs) have been issued. Members of the Australian accountancy profession are required to conform with Australian Accounting Standards by Professional Statement (APS) IConformity with Accounting Standards, which states that: The Australian accountancy profession requires members who assume responsibilities in respect of the preparation, presentation or audit of financial statements to support the Statements of Accounting Standards approved by the profession.