Stuart Locke

Corporate governance practices of small cap companies and their financial performance: an empirical study in New Zealand

The purpose of this paper is to examine the effect of corporate governance practices of small cap companies have had on their financial performances. Previous studies have mainly examined governance practices of larger corporations. This analysis focuses on the governance variables that have been highlighted by the New Zealand Securities Commission (2004) governance principles and guidelines and also on the governance variables that are supported in the literature as providing an appropriate structure for the firm in the environment in which it operates. The data for 71 small cap companies listed in New Zealand over a five-year period from 2001 to 2005 was analysed. Pooled data, OLS and 2SLS regression techniques were used and Tobins Q, ROA and OPINC were used as the dependent variables. The evidence does support the hypothesis that the existence of board independence and audit committee has enhanced firm financial performance, as measured by Tobins Q.

Mergers and acquisitions: a review. Part 1

Purpose - – This paper aims to review the relevant literature on mergers and acquisitions in an attempt to provide a comprehensive account of what we know about mergers and which parts of the puzzle are still incomplete. Design/methodology/approach - – This literature review consists of three key sections. The first part of this paper summarises the literature on the cyclical nature of mergers referred to in the literature as merger waves. The second section reviews the causes and consequences of takeovers; it first reviews the causes, or drivers, of acquisitions, while focusing on the fact that acquisitions happen in waves and then reviews the consequences of takeovers, with a predominant focus on the impacts of mergers on the economic performance of acquirers. The third part of the review summarises the theories as well as previous empirical studies on determinants of announcement returns and post-acquisition performance of combined firms. Findings - – Merger activity demonstrates a wavy pattern, i.e. mergers are clustered in industries through time. The causes suggested for this fluctuating pattern include industry and economy-level shocks, mis-valuation and managerial herding. Market reaction to announcement of acquisitions is, on average, slightly negative for acquirer stocks and significantly positive for target stocks. The combined abnormal return is positive. These findings have been consistent over several decades of investigation. The prior research also identifies a number of factors that are related to performance of acquisitions. These factors are categorised and reviewed in five different groups: acquirer characteristics, target characteristics, bid characteristics, industry characteristics and macro-environment characteristics. Originality/value - – This review illustrates a number of issues. Prior research is heavily biased towards gains to acquirers and factors that affect these gains. It is also biased towards finding sources of value creation through mergers, despite the fact that several theories suggest that mergers can be value-destroying. In fact, value destruction is often attributed to managers’ self-interest (agency problem) and mistakes (hubris). However, the mechanisms through which mergers destroy value are rarely addressed. Aside from that, the possibility of simultaneous creation and destruction of value in acquisitions is not often considered. Finally, after several decades of investigation, a key question is not completely answered yet: “What are the sources of value in mergers and acquisitions?”

The performance of entrepreneurial companies post-listing on the New Zealand Stock Exchange

The paper reports an investigation of the returns obtained on a listed portfolio of entrepreneurial companies comparing these with a portfolio of listed small businesses and the stock market overall. The initial findings produce counter-intuitive results in that the returns on the portfolio of entrepreneurial companies appear to be less than those for other small companies and for the market overall. Further, initial public offerings of entrepreneurial companies appear to be overpriced and suffer a price decline post-listing that takes approximately a year and a half to recover. An implication of such results is that money will not flow to the entrepreneurial firms, which may have unfavourable longer-term consequences for economic growth. Various government polices are directed towards achieving sustainable economic growth through the smaller business sector and encouraging these businesses to expand and list on the stock exchange. The overpricing of IPOs and lower returns are not likely to encourage investor support for the entrepreneurial companies, making it difficult for these policies to succeed.

Capital Structure and its Determinants in New Zealand Firms

The current study aims to empirically explore the relationship between firm characteristics, corporate governance and capital structure in New Zealands large listed companies. Eight years of data for 40 firms listed on the NZX50 Stock Exchange, are collected and observations are analysed using a conditional quantile regression. This study finds firm-specific characteristics rather than corporate governance variables play a significant role in determining firm leverage levels. The results indicate that finance policies need to vary across firm type and firm characteristics, and should match with the different borrowing requirements of listed firms.

Applicability of Contrarian Strategy in the Bombay Stock Exchange

The application of contrarian strategies in the Bombay Stock Exchange (BSE) are examined in this paper, shedding further light on competing explanations underlying this anomaly. Three specific issues are investigated using several models. First, can a trader book a profit by employing a contrarian strategy? The test portfolio earned a contrarian profit of 74.40 per cent above the market return. Second, risk differences between Winner and Loser portfolios are found to be an independent phenomenon. Third, the size of the firm appears to play a vital role in explaining the overreaction hypothesis.

Corporate governance, board diversity and firm financial performance: new evidence from Sri Lanka

This paper investigates demographic diversity of board members in the Sri Lankan boardroom and their effect on the firm financial performance. Board diversity is measured by gender, ethnicity, age, education and occupational diversity. After controlling for potential endogeneity, this study finds that though board ethnicity and age diversity increase firm financial performance, board gender, education and occupational diversity reduce firm financial performance. Further, this studys results indicate Sri Lankan corporate boards are not fully diversified in their gender, race and educational qualifications and achievements. The results indicate that in Sri Lankas uncertain environment, rather than having a diversified board, the preference is for recruitment to be focused on board members with the right skills. However, as a multicultural country, it is essential to introduce new board diversity orientation programmes, because such programmes create a two-way socialisation process, i.e., bias is reduced and minority perspectives can influence organisational norms and values.

Governance in New Zealand Tertiary Institutions: Concepts and practice

The standard of governance of tertiary education institutions (TEIs) in New Zealand is critical to the success of these institutions. However, enhancing the quality of governance requires careful analysis of the purpose of governance and competent analysis of alternative institutional arrangements. Unfortunately, research addressing governance in TEIs is sparse and there has been no significant research on this topic within New Zealand. This paper provides a background to TEI governance in New Zealand, which is followed by a discussion of key issues. An evaluation of governance practice in TEIs is followed by a description of a survey of current practice in New Zealand TEI governance and an analysis of the results. The paper concludes with a discussion on how governance in New Zealand TEIs may be improved.

Relevance of corporate governance practices in charitable organisations: A case study of registered charities in New Zealand

Purpose - The purpose of this paper is to examine whether the registered charities in New Zealand have adopted the principle-based corporate governance practices similar to those adopted by the publicly-listed companies and the effect corporate governance practices have on their financial performance measured by technical efficiency, allocative efficiency and quick ratio. The paper addresses four important questions: how registered charities in New Zealand are managed and controlled; whether the funds donated to registered charities are utilised effectively; the nature of the corporate governance practiced by registered charities in New Zealand; and the nature of compliance to the Charities Act 2005. Design/methodology/approach - Panel data for the registered charities over the period 2008-2010 are analysed using ordinary least squares (OLS) regression and Tobit model regression. Technical efficiency, allocative efficiency and quick ratio are used as the dependent variables. Findings - The findings indicate that there is no reporting requirement for the registered charities under the Charities Act 2005 to report detailed information regarding the board make-up, board committees, board meetings, etc. and therefore, registered charities have not reported such information. The results show also that board gender diversity is an important corporate governance mechanism to mitigate agency problem in charitable organisations in New Zealand. However, large board size and large donors have potential to increase agency costs in charitable organisations in New Zealand. Research limitations/implications - Caution should be exercised when interpreting and generalising the papers results, as this study is a case study of registered charities in New Zealand and data comprised only large charities that have revenue over NZ

Informality and credit constraints: evidence from Sub-Saharan African MSEs

20?m. It should also be noted that there was a small sample size, which may have had a bearing on the results. Practical implications - This study offers insights for policy makers and practitioners interested in adopting similar corporate governance practices within their country. Social implications - Within New Zealand, issues relating to management and control of charitable organisations are better understood and as a consequence, development of sector-wise standards could be initiated. Originality/value - This research is novel as it investigates the nature of corporate governance practices relating to the registered charities in New Zealand. The availability of data provided by Charities Commission made this research possible.

Profitability of momentum returns under alternative approaches

The attributes of micro and small enterprises (MSEs) influencing access to credit, in particular the level and role of firm informality, are analysed in the article. The puzzle is the push for MSEs to join the formal sector and the tug to avoid the extra burden it places on the firm. It is important to know more clearly what forces are at work and the sources of the causal effects. This study uses data from the World Bank Enterprise Surveys for five low-income countries (LICs) in Sub-Saharan Africa. The method is empirical and as we find informality to be endogenous to credit constraints, an instrumental variable approach is estimated. Further, to address the possibility of reverse causality, an instrument for the informality variable is required; not registered with Inland Revenue (tax office) is the chosen instrument variable. The findings reveal that as the probability of a firm operating in the formal sector increases, there is greater access to external credit. The causality relationships are tested providing a strong platform for the formalization of polices to reduce the informality of the MSE sector. These are discussed in the context of the research findings.