Tom Scott

Shareholder say on pay and CEO compensation: three strikes and the board is out

From 2011 in Australia, if over 25% of shareholders vote against a non-binding remuneration resolution, firms are awarded a ‘strike’. We examine 237 firms that receive a strike relative to matched firms, and find no association with any measure of CEO pay. However, we do find that strike firms have higher book-to-market and leverage ratios, suggesting that the remuneration vote is not used to target excessive pay. We also find that firms respond to a strike by decreasing the discretionary bonus component of CEO pay by 57.10% more than non-strike firms and increasing their remuneration disclosure by 10.95%.

What If There Were Three? Audit Pricing within the Big 4 and the PricewaterhouseCoopers' Premium in the Australian Audit Market

This paper examines intra-Big 4 audit fee premiums in the Australian market. During the period examined (2002–2004), there is both Big 4 and intra-Big 4 market dominance. The three largest firms – the ‘Big 3’ (Ernst & Young, KPMG and PricewaterhouseCoopers) – hold over 80 per cent of audit fees for companies listed on the Australian Securities Exchange. We find the main feature of the Australian audit market over this period is a PwC brand premium, which suggests price competition and thus no collusive pricing. Within the Big 4, audit pricing effects are likely to be a growing area of inquiry in future audit pricing literature. Overall, our study implies that regulatory concerns about a lack of a competition in the audit market during this period are inconsistent with the audit pricing evidence.

The Association between Accounting Performance and Constituent Response in Political Markets

Since 2006, New Zealand local authorities (councils) have been required to disclose long-term accounting data relating to forecast operating revenue and expenses. The production and disclosure of council planning data is based on the perceived accountability of the council to its constituents. This paper examines whether characteristics of the 2007 and 2010 New Zealand council elections are associated with accounting performance, measured as the unexpected difference in operating expenditure. We find that that accounting performance and the sign of accounting performance (i.e., expenditure over-runs) are associated with greater councillor re-election. Furthermore, accounting performance is also associated with greater voter turnout. Thus we find that accounting, in an electoral context, has both information content and conveys good/bad news to voters.

Explanations for Not Having an Audit Committee in a ‘Comply or Explain’ Regime: Comply or Explain Regime

We utilise the Australian ‘comply or explain’ corporate governance regime to examine the explanations given for not having an audit committee and whether these explanations are consistent with underlying firm characteristics. We hand‐collect explanations provided by firms, and find the most common explanations are that the firm or board size is too small or that the firm is insufficiently complex to justify an audit committee. Thus, the reasons that firms provide for not having an audit committee are focused on internal factors limiting their ability to supply an audit committee. As we find that these explanations are associated with lower total assets, smaller board size and lower leverage, they are consistent with underlying firm characteristics. Thus firms are not providing inconsistent or unrelated explanations as pretexts to avoid forming an audit committee. Documenting that the explanations given for non‐compliance are associated with related firm characteristics should be of interest to regulators and policy makers.

Evidence on why firms use different disclosure outlets: Purchased analyst research, investor presentations and Open Briefings

Purpose - The purpose of this study is to consider why firms use different disclosure outlets. The authors argue that the firms choice of disclosure outlet can be explained by voluntary disclosure theories and investigate whether the market response around different disclosure outlets varies. Design/methodology/approach - The authors investigate differences in the characteristics of firms purchasing analyst research, holding investor presentations or Open Briefings and compare market reactions around each disclosure event. Findings - The authors find that firm incentives to reduce information acquisition costs or mitigate disclosure risk affect firm disclosure outlet choice, and mixed evidence in support of talent signalling motivations. There is a lower absolute abnormal return around Open Briefings and a higher signed abnormal return around purchased analyst research. Research limitations/implications - The research is exploratory in nature and only considers a small subset of disclosure outlets. There may be differences in information content across disclosure outlets. Originality/value - They show disclosure outlets are not homogenous and provide empirical evidence voluntary disclosure theories help explain differences between firms’ use of disclosure outlets. Considering the growing number of disclosure outlets available, disclosure outlet choice is likely to be an increasingly important topic in accounting research.