Suntharee Lhaopadchan

Fair value accounting and intangible assets: Goodwill impairment and managerial choice

Purpose - Advocates of greater intangible asset reporting frequently make the criticism that the published financial statements of companies do not adequately reflect the value of intangible assets and hence provide potentially misleading information to the users of the financial statements. The purpose of this paper is to evaluate whether since the introduction of “fair value accounting,” particularly in respect of the treatment of acquired “goodwill” shown on consolidated balance sheets, these criticisms retain any validity. The paper investigates the extent to which it can be confidently asserted that the recognition of acquired goodwill and the post-acquisition rules for recognizing any goodwill “impairment” has materially improved the information available to the users of financial statements and/or whether these developments have resulted largely in providing self-interested managers with greater opportunities to engage in earnings and balance sheet manipulations that are of doubtful value to users. Design/methodology/approach - The paper critically reviews the rules and the intentions of accounting policy makers in relation to fair value acquisition accounting and evaluates the empirical evidence relating to corporate behavior in this area. Findings - Despite the presumed benefits associated with fair value accounting, it is shown that in practice managerial self-interests and earnings management concerns appear to motivate many goodwill impairment decisions. However, as investors and analysts have always had the option to adjust, or indeed totally ignore, reported accounting numbers it is far less certain whether this reporting behavior actually misleads users or significantly reduces the information content (reliability and relevance) of the financial statements. Originality/value - The paper provides an overview of the accounting treatment and reporting consequences associated with the introduction of fair value accounting in respect of acquired goodwill.

How informative is the Thai corporate governance index? A financial approach

Purpose - Prior research, in mainly Western economies, suggests the level of corporate governance is financially important. As an emerging economy case study, the purpose of this paper is to investigate whether the Thai Institute of Directors (IOD) corporate governance index provides investors with financial information about fundamental value and arbitrage portfolio decisions, and if/how information content changes over time. Design/methodology/approach - Logistic regressions using 11 financially dependent variables and a “good governance” dummy variable, constructing zero-cost buy-sell portfolios, and Fama-French cumulative average returns (CARs), over the period 2001-2006. Findings - The predicted significant relationships between a “good governance” categorization and financial proxies for firm performance; and zero-cost portfolios that generate very high future monthly excess returns early in the study period, which are then dissipated by 2006, are found. These high returns were also associated with insignificant or inconsistent ten-day CARs after the announcement of an improving (deteriorating) index category, but with a more rapid reaction in 2006. Research limitations/implications - Results suggest that either (or in a combination): the Thai stock market had a slow learning adjustment to the governance index because of uncertainty as to information content; the IOD was incomplete and needed fine tuning and updating before full information impact was realized; and other time-specific factors meant the IOD was of a lesser importance. One limitation is the data time period and the extension of the governance analysis to the global financial crisis years. Practical implications - Governance information content in Thailand was not (initially) fully integrated into prices with substantial arbitrage returns available to astute investors. Continual re-assessment and improvement of governance reporting should be an agenda requirement. Originality/value - The paper forms an extension of governance studies into an Asian emerging economy, and determination of time-varying information content and arbitrage opportunities.

Asymmetric trading by insiders – comparing abnormal returns and earnings prediction in Spain and Australia

This paper examines whether the ‘external governance’ imposed by comparative financial accounting standards reduces the trading advantage of insiders. We do this by directly comparing insider trading returns and insider’s ability to predict future earnings from accruals in Spain and Australia. Results show higher excess returns and greater prediction of future earnings from conditioned insider trading in Australia that is then utilized by financial analysts to lower forecast errors – particularly in contrarian-based accruals trading. Possible explanations include: (i) a high asymmetric quality for market-based accruals, (ii) information transfer from informed insiders to uninformed insiders and financial analysts and (iii) a more timely dissemination of financial information in Spain through different ownership and governance structures.

Applying Developed‐Country Regulation in Emerging Markets: An Analysis of Thai Insider Trading

This paper undertakes an out-of-sample test of developed-country insider trading regulation in an emerging market environment (Thailand), where severe information asymmetry, lax enforcement and poor pricing efficiency are endemic. Thai insider trading regulation, which mimics developed market rules, fails on all three measures of success. Insiders trade with impunity during a regulated trading ban. Their trading performance outperforms other investors at all times, and they continue to exploit their privileged position with respect to information flow. Our study suggests it is inappropriate for emerging market regulators to adopt developed market regulation without first considering the unique characteristics of their own environment.

The politics of sovereign wealth fund investment: the case of Temasek and Shin Corp.

Purpose - The purpose of this paper is to highlight some of the political aspects of sovereign wealth fund investment. Design/methodology/approach - The paper employs a case study approach, bringing together various news articles and reports from around the world to build a picture of the key events surrounding the Temasek acquisition of Shin Corp. Findings - The paper finds that the deal between Temasek and Shin Corp. was complex as foreign ownership is limited in Thailand. To add further controversy to the deal, the ultimate owner of Shin Corp. was former Thai Prime Minister Thaksin Shinawatra. Consequently, the controversy surrounding the deal and sensitive nature of the sale caused significant political turmoil in Thailand, and in some measure contributed to the military coup that finally ousted Thaksin Shinawatra. Research limitations/implications - The paper is a case study and as such is illustrative. Practical implications - The case highlights the potential fallout from sovereign wealth fund investment as a result of acquiring strategic assets. Originality/value - To the best of the authors knowledge, the paper presents the first discussion of this important issue.

Does Corporate Governance Improve Transparency in Emerging Markets

We seek to understand how corporate governance affects transparency in emerging markets, where information asymmetry is endemically high. Using Thailand as a case study, we find that firms with better quality corporate governance have more firm-specific information incorporated in stock prices. We also highlight the role of corporate insider trading in further reducing information asymmetry in Thailand. The results are robust to alternative proxies for information disclosure.

Asset Allocations in a Thai Defined Contribution Fund: A Behavioural Experiment Conditioned on Financial Expertise

This paper reports the results of a behavioural finance experiment on the ability of Thai individuals to make informed investment decisions under a defined contribution self-management option. Using an asset allocation dataset from members of the Thai Government Pension Fund (TGPF) and a control sample of financially knowledgeable individuals (MBA finance students), we report that TGPF members are relatively more risk averse, exhibit a greater home investment bias, and over-react to market price movements. Financially savvy MBA students hold more shares and international securities, and earn greater long term returns. The fact that the worse performing TGPF member allocations outperform the TGPF default plan, along with strong preferences for time liquidity diversification, provide challenges for TGPF managers to increase their financial engineering and to continue to lobby for restrictive investment ceilings to be revised.

Information Transfer, Rent Extraction and Insider Trading ― Who Internalised the Private Information Externality?

We examine corporate insider transactions around Sarbanes-Oxley §403 (SOX) regulatory regimes and subsequent Wall Street Journal (WSJ) media postings — and provide new evidence on the benefit/cost trade-off tension between private information transfer and stock trading costs. SOX increased abnormal returns for insiders in conjunction with market-maker induced higher trading costs — reversed after WSJ posting of Form 4. The highest trade-off impact was clustered around purchases by non-executive directors and intangible rich firms. We reject the notion that SOX provided an information externality to outside investors from accelerated reporting of insider profitability. Our alternative explanation is an (unintended) internal information externality to less informed non-executive directors (per Fishman and Hagerty 1995) at the expense of increased trading costs to outside investors (per Leland 1992). Highlighted are cost trade-offs from regulations intended to address investor information asymmetry, and the incremental role the media plays in disseminating second hand and pre-trading private information.