Maria Strydom

A few good (wo)men? Gender diversity on Australian boards

This article examines the relation between gender diversity and earnings quality for Australian firms from 2005 to 2013. We draw on the work of Kanter, highlighting the importance of the proportion of women on the board when measuring diversity. We show that all-male and skewed boards have lower earnings quality while that of tilted and balanced boards is higher. In addition, a critical mass of women is achieved when some 30% of directors are females. Performance and risk do not influence the relation. We contribute by presenting evidence supporting critical mass theory. Furthermore, our work adds to the recent debate on whether the association between gender diversity and earnings quality is U-shaped, rather than linear. Our results have implications for regulation and practice. We identify the need for a critical mass of women, rather than tokens, to enhance earnings quality.

Impact of mood and gender on individual investors’ reactions to retractions and corrections of earnings forecasts

ABSTRACT Whilst individual investors’ reactions to earnings forecasts have been widely documented, the impact that retractions and/or corrections have on investors’ decisions has received little attention. Further, the role that either/both mood and gender of investors play has not been investigated within this context. This is especially important as failure by individual investors to adjust correctly to retractions/corrections of earnings may have adverse investment outcomes. Our study thus investigates whether mood and gender differences influence the way in which individual investors react to retractions and corrections of management earnings forecasts. In this paper, we show that individual investors do not adjust correctly to retractions and corrections of previously disclosed information. We also find that both mood and gender play a significant role in individual investors’ reactions to such announcements. Awareness of the differences in investors’ reactions to retractions and corrections of earnings according to their mood and/or gender can provide further insights on whether their investment decisions are rational and are hence consistent with traditional models of assumed rational investment behaviour.

Does well-being impact individuals’ risky decisions and susceptibility to cognitive bias?

This article explores the relation between individual well‐being, risky decision‐making, susceptibility to cognitive biases and investor beliefs about investing. A survey of one hundred and two individuals revealed that those with higher satisfaction with life are more prone to taking risks. In a loss frame, participants who were most likely to take a gamble had higher levels of psychological, social and overall well‐being. Lower levels of satisfaction with life were found to impact the susceptibility of the reflection effect cognitive bias. In addition to this, well‐being was found to be associated with investment beliefs, particularly those concerning diversification, the need to be alert and active, and the risk/return trade‐off.

Promotion Incentives, CEO Appointments and Firm Performance

Executive remuneration is often criticised as being excessive and not clearly linked to firm performance. This study further examines the link between pay and performance by examining the impact of promotion-based tournament incentives. Our hypotheses draw on tournament theory of labour economics which argues that the ‘gap’ between the remuneration of CEO and other senior executives creates a tournament-style competition for promotion amongst ambitious senior executives. The efforts of these highly motivated executives have a positive influence on overall firm performance. Whilst tournament theory is well studied in the US and UK (Conyon et al. 2001; Kale et al. 2009; Gong et al. 2011), Australian evidence is sparse. Our empirical analysis therefore seeks to better understand the determinants of tournament incentives, particularly surrounding the appointment of a new CEO. Further, we test whether firm performance is influenced by the magnitude of tournament incentives. Our results suggest that tournament incentives play a significant role in enhancing firm performance, but that this positive impact is somewhat reduced after a change in CEO. We also find that closer alignment of CEO pay (through equity compensation) is positively associated with firm performance. In regards to the determinants of tournament incentives we find that tournament incentives are lowest after a change in CEO. This study therefore contributes to the topical debate on executive compensation by providing evidence on the effectiveness of tournament incentives and their relationship to firm performance in the Australian environment. It is one of the first to examine whether tournament incentives play any role in the pay-for-performance relationship in Australia and findings are likely to be of interest to researchers, policy makers, corporations and their shareholders, given the increased current focus on executive compensation and the lack of clear alignment with firm performance.