Keryn Chalmers

The Determinants of CEO Compensation: Rent Extraction or Labour Demand?

Abstract CEO compensation is topical and controversial and accordingly receiving considerable attention by various stakeholders. We investigate whether rent extraction or labour demand explains CEO compensation level in Australia. We do so by examining the determinants (economic, governance and ownership) of CEO compensation level and explore the relationship between predicted excess compensation and subsequent firm performance. Our results suggest that governance and ownership attributes, in addition to economic attributes, are significant determinants of CEO compensation. However, these attributes differentially determine the various components of CEO compensation. Our evidence is consistent with: (1) the determination of fixed salary and share-based compensation reflecting a firms demand for a high-quality CEO; and (2) the CEOs ability to extract rent through bonus and options compensation, particularly for smaller firms or firms with above average performance. However, the rent extraction is not economically significant and does not persist beyond one year. This is in sharp contrast to the US evidence where rent extraction through CEO compensation is pervasive, economically significant and persistent [Core, J., Holthausen, R., Larcker, D., 1999. Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics 51, 371–406].

Changes in value relevance of accounting information upon IFRS adoption: Evidence from Australia

We investigate whether the adoption of IFRS increases the value relevance of accounting information for firms listed on the Australian Securities Exchange. Using a longitudinal study that covers pre-IFRS and post-IFRS periods during 1990–2008, we find that earnings become more value-relevant whereas the book value of equity does not. This impact is concentrated in the subsamples of industrial firms, both large and small, and firms reporting an AGAAP-IFRS accounting reconciliation upon IFRS adoption. Consistent with an increase in the value relevance of earnings, earnings also become more persistent around IFRS adoption. Our study suggests that even for a country categorized by strong investor protection and high-quality financial reporting and enforcement, IFRS adoption affects the associations between accounting information and market value. JEL Classification: M40, M41

Intangible assets, IFRS and analysts’ earnings forecasts

We investigate whether the adoption of IFRS in 2005 by Australian firms has been associated with a loss of potentially useful information about intangible assets, as conjectured by Matolcsy and Wyatt (2006). We find that the negative association between analyst forecast error magnitude/dispersion and aggregate reported intangibles previously documented becomes stronger subsequent to IFRS adoption, primarily for firms with high levels of underlying intangible assets. This is contrary to Matolcsy and Wyatt (2006)’s conjecture. Our result is largely due to reported goodwill, rather than other intangible assets, suggesting that the impairment approach to goodwill valuation required by IFRS conveys more useful information than does the former straight-line amortisation approach. When we investigate a sub-sample of firms that report lower intangibles under IFRS than under the prior Australian GAAP, we do find evidence consistent with the Matolcsy and Wyatt (2006) conjecture.

Value relevance of accounting information in China pre- and post-2001 accounting reforms

Purpose - This paper aims to investigate whether the accounting reform in China has improved the relevance of Chinas accounting information. It seeks to investigate the association between earnings and book value of equity to share returns before and after the introduction of the Accounting System for Business Enterprises (ASBE) in 2001 for A- and A&B-share firms. Design/methodology/approach - The paper employs the return regression model. The pre-ASBE period is designated as 1997 through to 2000, and the post-ASBE period is designated as 2002 through to 2004. All firms listed on the Chinese stock market during the investigation period constitute the sample. Findings - It is found that accounting information better explains share returns for both A-share firms and A&B-share firms in the post-ASBE period. The paper also finds that the book value of equity for A&B-share firms is incrementally value relevant to that of A-share firms in the post-ASBE period. Research limitations/implications - Further studies will contribute to understanding how governance mechanisms and liquidity influence the association between accounting information and share returns in the Chinese A-share market. Practical implications - The findings provide empirical evidence regarding the relevance of accounting information in emerging markets. Originality/value - The paper contributes to the extant value relevance literature by investigating time periods surrounding the issue of ASBE in 2001 in the Chinese stock market.