Vic Naiker

The Effect of Board Characteristics on Firm Environmental Performance

This study investigates the relationship between strong firm environmental performance and board characteristics that capture boards’ monitoring and resource provision abilities during an era when the natural environment and the related strategic opportunities have increased in importance. The authors relate the proxy for strong environmental performance to board characteristics that represent boards’ monitoring role (i.e., independence, CEO-chair duality, concentration of directors appointed after the CEO, and director shareholding) and resource provision role (i.e., board size, directors on multiple boards, CEOs of other firms on the board, lawyers on the board, and director tenure). The authors provide evidence consistent with both theories of board roles. Specifically, consistent with their agency theory–driven predictions, the authors find evidence of higher environmental performance in firms with higher board independence and lower concentration of directors appointed after the CEO on the board of directors. Consistent with resource dependence theory, they show that environmental performance is higher in firms that have larger boards, larger representation of active CEOs on the board, and more legal experts on the board. Their findings are generally robust to a number of sensitivity analyses. These findings have implications for managers, firms, shareholders, and regulators who act on behalf of shareholders, if they are interested in influencing environmental performance.

Audit Committee Financial Expertise, Corporate Governance and Accruals Quality: An Empirical Analysis

Following the enactment of the Sarbanes Oxley Act 2002, US stock exchanges strongly advocate the presence of financial experts on audit committees. However, the ideal definition of financial expertise proves to be a controversial issue culminating with the stock exchanges adopting a wide scoped definition of financial expertise. Using this definition, prior studies have not provided consistent evidence of financial expertise positively influencing audit committee effectiveness. We investigate the association between three types of audit committee financial expertise (accounting, finance and supervisory expertise) and accruals quality. We find significant positive relation between accounting expertise and accruals quality, which is more pronounced in the presence of strong audit committee governance. The findings indicate that the current definition of financial expertise is too broad and any future refinements must focus on accounting expertise of the audit committee members.

Institutional ownership and corporate value

Purpose – Prior studies examining the relation between the shareholdings by institutional investors and firm value have produced mixed results. These studies have assumed that a linear relation exists between corporate value and institutional shareholdings. The purpose of this study is to further investigate the nature of this relationship and by partitioning institutional investors into institutions that have appointed a representative to the board of directors of the firms in which they have a block investment and institutions with a similar holding but without a representative on the board of directors. Design/methodology/approach - The study is based on a sample of 123 firms with available financial and institutional ownership data. A cross-sectional regression analysis is used to test the relation between corporate value and institutional ownership with and without board representation. Findings - The results of the study suggest that share ownership by investors with board representation is positively related to the value of the firm at lower levels of ownership. However, as the share ownership increases, the impact on the value of the firm becomes negative, giving rise to a non-linear relation. The extent of shareholding by institutions without board representation, on the other hand, is not related to the value of the firm. Research limitations/implications - The findings show that institutions with board representation have greater incentives to monitor management, and therefore their presence should have a positive influence on firm value. However, at high levels of ownership, institutional investors with board representation may induce boards of directors to make sub-optimal decisions. Originality/value -The study provides a deeper understanding of the relationship between firm value and institutional ownership. That is, the effect of shareholding by institutions with board representation is likely to have a non-linear relation with firm value.

Are CSR Disclosures Value Relevant? Cross-Country Evidence

Abstract Using proprietary data that rate corporate social responsibility (CSR) disclosures of firms in 21 countries, this study examines how the strength of nation-level institutions affects the extent of CSR disclosures. We then examine the valuation implications of CSR disclosures and consider how the relation between CSR disclosures and firm value varies across countries. In contrast to prior studies, we separate CSR disclosures into an expected and unexpected portion where the unexpected portion is a proxy for the incremental information contained in CSR disclosures. We observe a positive relation between unexpected CSR disclosure and firm value measured by Tobins Q. We also find that, while countries with strong nation-level institutions promote more CSR disclosures, the valuation of a unit increase in unexpected CSR disclosures is higher when nation-level institutions are weak.

The Effect of Audit Specialists on the Informativeness of Discretionary Accruals

Prior literature finds evidence that clients of industry specialists have a lower level of discretionary accruals compared with nonspecialists. This finding suggests that industry specialists constrain the use of discretionary accruals. In addition to opportunistic reasons, however, managers also can use discretionary accruals to make earnings more informative. We examine the market pricing of discretionary accruals of clients of specialist and nonspecialist auditors. If industry specialists constrain opportunistic discretionary accruals but allow informative discretionary accruals, we expect a stronger relation between discretionary accruals and returns for clients of specialists. We use two different analyses based on Subramanyam (1996) and Tucker and Zarowin (2006) to investigate this issue. We find no evidence that the discretionary accruals of clients of industry specialists are more informative or more value relevant, although we do find that clients of specialists have more informative nondiscretionary accruals.

Impact of the Minimum Wage on Expected Profits

Abstract This paper investigates the impact of a significant reform to the youth minimum wage in New Zealand in 2001, on the expectations of low wage employers’ profits. In March 2001, the eligibility for adult minimum wage rates was lowered from 20 to 18 years while the youth minimum wage for 16–17 year olds was also increased from 60 to 70% of the adult minimum wage. We construct a descriptive profile of minimum wage workers in New Zealand and their industry membership. We find that most minimum wage workers in New Zealand predominantly work in the four industry sectors; (1) Retail, (2) Textile and apparel, (3) Accommodation, cafes and restaurants, and (4) Agriculture, forestry, and fishing. Next using an event study methodology we examine the economic impact of the substantial increase in youth minimum wage rates on employers in industries with high concentrations of minimum wage workers. Surprisingly, all conclusions point to there being an insignificant impact on profit expectations for low wage employers by investors.

Equity value implications of the SEC Exchange Act Rule 13a-14: A litigation cost perspective

The purpose of our study is to assess the role of litigation risk in the stock price setting process in relation to the Securities and Exchange Commission (SEC) Exchange Act Rule 13a-14. We employ 12 June, the proposal of Rule 13a-14, and 27 June, the ruling of certification requirement, as event dates, and investigate litigation cost implications of the SEC proposal and ruling. We focus on firms in industries that are highly exposed to class action lawsuits and find negative abnormal returns surrounding 12 June, and positive abnormal returns surrounding 27 June, for firms relieved from compliance requirements. The results are more profound for firms in high-litigation-risk industries.

Securities Price Effects of Napster-Related Events

Napster released its controversial peer-to-peer music file sharing software to the public in June 1999, and after approximately two years of intense debates and legal battles it was eventually ordered to shut down in February 2001. The opponents of Napster (e.g., the Recording Industry Association of America, RIAA, and Metallica Lars Ulrich) suggested that Napster had collapsed the business structure of the U.S. multibillion-dollar music industry. Napster, on the other hand, argued that its service had increased the music sales. We use Napster as a proxy for diffuse piracy through the Internet since it was the conduit for individual file sharing on a large scale. We examine the effects of 11 prominent Napster-related events on the equity value of firms in the U.S. music industry. If Napsters service stimulated (harmed) music sales, then events that increased (decreased) the effectiveness of Napster would improve (reduce) the stock prices of the music firms. Our evidence suggests that events that increased the effectiveness of Napster as a distribution mechanism improved the stock prices of the music firms. Additionally, the evidence indicates that events that threatened Napsters survival resulted in decreases in the stock prices of the music firms. Music firms in the sample experienced negative excess returns ranging from minus;1.76 percent to minus;10.69 percent in response to anti-Napster events. On the other hand, retreats from anti-Napster events were accompanied by positive excess returns ranging from +0.56 percent to +5.05 percent. The seven anti-Napster events resulted in a total capital loss in excess of

The Association Between Accruals Quality and the Characteristics of Accounting Experts and Mix of Expertise on Audit Committees

18 billion and the four pro-Napster events created wealth in excess of

Does Auditor Industry Specialization Matter? Evidence from Market Reaction to Auditor Switches

9 billion, compared to the total market capitalization of