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Editorial Volume 6 Issue 5, Ron Perrin, Greg Laing, Ciorstan Smark

Australasian Accounting, Business and Finance Journal

The articles published in this issue of AABFJ cover a variety of discipline areas as well as providing a contrast in methodologies for research. Cheung and Powell (2012) provide guidance on the use of the Excel modelling package to construct parametric and Monte Carlo Simulation models. Lama (2012) examined the relationship between corporate governance and a firm’s performance as measured by return on equity, earning yield and return on assets, and found and found that in mid-sized Australian ASX companies there was a positive correlation. Morunga and Bradbury (2012) report on the data overload found in the financial reports of …

Succession Planning In Australian Farming, John Hicks, Richard Sappey, Parikshit Basu, Deirdre Keogh, Rakesh Gupta

Australasian Accounting, Business and Finance Journal

The theme of this paper is that succession planning in Australian farming is under-developed. It may be linked to economic and social change which suggests that farmers need to adapt to generational change but this is being resisted or ignored. The implications of this are the slow decline of family farming, a poor transfer of skills and knowledge to subsequent generations of farmers in some parts of the agricultural sector and the potential for an extension of the financial services industry to develop a more effective raft of succession planning measures to mitigate the effects of a traditional approach to …

Collaborating With Industry To Enhance Financial Planning And Accounting Education, Mark Brimble, Craig Cameron, Brett Freudenberg, Campbell Fraser, Kirsten Macdonald

Australasian Accounting, Business and Finance Journal

Higher education is integral to the professionalisation of financial planning in Australia. However, the traditional separation between ‘content’ and ‘practice’ in tertiary curriculum does not necessarily equip students with the skills required to apply the content in a professional context. Contextualisation of the financial planning curriculum requires collaboration between higher education institutions and the profession to develop authentic learning environments, such as work-integrated learning (WIL). This paper describes the collaboration by one Australian university to develop a professionally integrated Financial Planning and Accounting degree and provides evidence of its impact from an industry perspective. The results reveal a high level …

Kiwisaver And Retirement Adequacy, Kirsten L. Macdonald, Robert J. Bianchi, Michael E. Drew

Australasian Accounting, Business and Finance Journal

Investors face a long and uncertain journey to retirement and beyond, particularly when investing in new defined contribution schemes such as New Zealand’s KiwiSaver. This paper seeks to provide positive insights into the design of KiwiSaver by assessing the recently announced move from 4 to 6% minimum contribution rates using stochastic simulation. We consider retirement adequacy from two perspectives: (i) multiples of gross final earnings achieved during the accumulation phase; and (ii) replacement rates of salaries during the decumulation phase. The findings reveal that an increase in the contribution rate from 4 to 6% dramatically increases the probability of investors …

The Financial Life Well-Lived: Psychological Benefits Of Financial Planning, Kym Irving

Australasian Accounting, Business and Finance Journal

As the financial planning industry undergoes a series of reforms aimed at increased professionalism and improved quality of advice, financial planner training in Australia and elsewhere has begun to acknowledge the importance of interdisciplinary knowledge bases in informing both curriculum design and professional practice (e.g. FPA 2009). This paper underscores the importance of the process of financial planning by providing a conceptual analysis of the six step financial planning process using key mechanisms derived from theory and research in cognate disciplines, such as psychology and well-being. The paper identifies how these mechanisms may operate to impact client well-being in the …

The Financial Coaching Advice Model: An Exploration Into How It Satisfies Expectations Of Quality Advice, Julie Knutsen, Robyn Cameron

Australasian Accounting, Business and Finance Journal

For 20 years, the financial planning sector in Australia has been transitioning from a sales-orientated force to a profession of qualified and skilled practitioners. Today, the potential for professional financial planning advice to benefit Australians financially, economically and psychologically is recognised by government. Financially, these benefits include increased savings, less interest expense through faster debt reduction, higher investment returns and appropriate levels of insurance. Economically, a more financially literate society has the potential for less reliance on an already burdened social security system. Psychologically, the benefits include the peace of mind that comes from an individual being confident in financial …

Incorporating Financial Literacy Into The Secondary School Accounting Curriculum: A New Zealand Perspective, Grant Samkin, Mary Low, Jordan Taylor

Australasian Accounting, Business and Finance Journal

This paper examines whether selected stakeholder groups believe accounting should continue to be taught as an elective subject in its current form at New Zealand secondary schools or whether incorporating a financial literacy component would increase the subject’s relevance to students. A mixed method approach combining qualitative and quantitative research methods was used. An electronically administered survey was used to obtain the responses of secondary school accounting teachers, while additional insight in the form of semi-structured interviews was obtained from other stakeholders.

Although respondents generally agreed that students benefited from accounting as an elective subject at secondary school, all agreed …

Editorial: Special Issue On Financial Planning, Mark Brimble, Brian Murphy, Rakesh Gupta

Australasian Accounting, Business and Finance Journal

The special edition presents current research in the area of financial planning. With the continual upheaval in global financial markets (including Australia), the general trend towards self-funded retirement and less reliance on the state, financial crises and the continual regulatory changes in the financial markets, this issue is timely and topical. This is the third special edition on financial planning, providing an excellent outlet for quality research in financial planning.

Reply To “Response: Board Composition And Firm Performance: Evidence From Bangladesh - A Sceptical View”, Afzalur Rashid, Anura De Zoysa, Sudhir Lodh, Kathy Rudkin

Australasian Accounting, Business and Finance Journal

This paper replies to Chowdhury’s (2010) response to the paper "Board Composition and Firm Performance: Evidence from Bangladesh" (2010). It challenges the strength of the criticisms, arguing that the factors discussed in Chowdhury (2010) do not necessarily impair the outcome of the research. The authors elucidate issues raised, and in so doing, reproduce the results incorporating the commentator’s suggestions.

The Effect Of Ifrs Adoption On The Financial Reports Of Local Government Entities, Kamran Ahmed, Manzurul Alam

Australasian Accounting, Business and Finance Journal

This paper aims to analyse the changes in accounting surplus (loss), equity and assets, and liabilities as a result of accounting policy changes from the Australian Accounting Standards (AAS) to the International Financial Reporting Standards (IFRS) in Australian local government entities. Using the reconciliation notes disclosed by 117 local government entities, evidence is provided on the effects of IFRS adoption by identifying the key items that of difference between IFRS and AASB. The results show some differences between two sets of accounts prepared under these different accounting standards. While the average surplus (loss) of local councils has decreased, their equities, …

Assessing The Value Of Graphical Presentations In Financial Reports, Arabella Volkov, Greg Laing

Australasian Accounting, Business and Finance Journal

The purpose of this study was to replicate the research of Davis (1989) to test the decision usefulness of different information presentations as alternatives to financial information that would normally be represented as numbers. A laboratory experiment, based upon Davis’ (1989) study, was conducted using a within subject experimental design to test for information effects. The experiment consisted of two groups with fifteen subjects in each. Decision usefulness was measured from the perspective of a user’s efficiency and effectiveness (operationalised as accuracy and response time) in answering questions of different levels of complexity. Evidence of the superior effectiveness and efficiency …

Partnership Versus Public Ownership Of Accounting Firms: Exploring Relative Performance, Performance Measurement And Measurement Issues, Mark E. Pickering

Australasian Accounting, Business and Finance Journal

Despite theoretical arguments that partnerships are the most efficient ownership form for professional service firms (PSFs), PSFs are increasingly moving to other ownership structures, such as publicly listed companies (PLCs). Research on the comparative performance of PSF, PLCs and partnerships is sparse with conflicting results suggesting that some segments of PSFs are moving to a less efficient form. This study explores the performance of two Australian accounting PLCs compared to a sample of similar sized mid tier accounting firms. The accounting PLCs achieved substantially higher revenue growth rates but lower productivity than the partnership sample. Measurement issues were identified in …

Risk And Return In Hedge Funds And Funds-Of-Hedge Funds: A Cross-Sectional Approach, Hee Soo Lee

Australasian Accounting, Business and Finance Journal

The objective of this study is to examine whether the available data on individual hedge funds (HFs) and funds-of-hedge funds (FOHFs) can reveal the risk-return trade-off and, if so, to find an appropriate risk measure that captures the cross-sectional variation in HF and FOHF returns and compare the risk-return relationship in HFs and FOHFs. Using the “live funds” and the “dead funds” datasets provided by Hedge Fund Research Inc. (HFR), we concentrate on alternative risk measures such as semi-deviation, VaR, expected shortfall and tail risk and compare them with standard deviation in terms of their ability to describe the cross-sectional …

Governance-Default Risk Relationship And The Demand For Intermediated And Non-Intermediated Debt, Husam Aldamen, Keith Duncan, Safdar Khan

Australasian Accounting, Business and Finance Journal

This paper explores the impact of corporate governance on the demand for intermediated debt (asset finance, bank debt, non-bank private debt) and non-intermediated debt (public debt) in the Australian debt market. Relative to other countries the Australian debt market is characterised by higher proportions of intermediated or private debt with a lower inherent level of information asymmetry in that private lenders have greater access to financial information (Gray, Koh & Tong 2009). Our firm level, cross-sectional evidence suggests that higher corporate governance impacts demand for debt via the mitigation of default risk. However, this relationship is not uniform across all …

Performance Of Active Extension Strategies: Evidence From The Australian Equities Market, Reuben Segara, Abhishek Das, James Turner

Australasian Accounting, Business and Finance Journal

This study examines the performance of several active extension strategies, commonly known as 130/30, in the Australian equities market. A detailed analysis of the factors affecting performance is explored using Monte Carlo simulations based on eight years of historical returns for the constituents of the S&P/ASX 200 index under a variety of realistic cost assumptions. We find evidence of a statistically significant increase in performance of active extension strategies over equivalent long-only portfolios, holding all other factors constant. The observed increase is highest for managers with greater levels of skill, where any tracking error limit is high and total costs …

Editorial Volume 6 Issue 3, Ciorstan Smark

Australasian Accounting, Business and Finance Journal

This issue of AABFJ has several finance articles related to the Australian securities market. Segara, Das and Turner (2012) report results from the use of active extension strategies in the Australian equities market. Lee (2012) examines whether individual hedge funds and funds-of-hedge funds (FOHFs) exhibit risk-return trade-off patterns. Finally, Aldamen, Duncan and Khan (2012) explore the impact of corporate governance on the demand for debt in the Australian market. Pickering (2012) explores the issue of whether public (ASX listed) or partnership ownership of accounting firms is the more efficient form.

A Technical Note On Australian Default Superannuation Investment Strategies, Loretta Iskra

Australasian Accounting, Business and Finance Journal

Superannuation has become more complex over time. Individual investors are inclined to seek the ‘path of least resistance’ and invest in default investment funds which are typically concentrated in high risk assets. Understanding how these funds will meet the individual needs of members relative to their changing circumstances can provide peace of mind and confidence in the market. Given the value of superannuation as an investment in terms of the economy, it is paramount than an appropriate mechanism be in place for default fund investors. This paper will clarify the existing position relative to default fund investment options and outline …

The Rebuilding Of A Life After Jail Time For Fraud, Joseph Lam, Kieran James, Jenny Kwai-Sim Leung

Australasian Accounting, Business and Finance Journal

After a brief introduction from the second-mentioned author, which sets the scene for the story as Cabramatta and environs in Sydney’s outer south-western suburbs, the first-mentioned author takes over and gives readers his life story beginning with his family fleeing the Communists in South Vietnam, moving on to his days in his twenties running his own accounting firm in western Sydney to tax frauds, court case, and jail time. He moves on to explain how he began a conscious strategy to re-create his life existentially by studying MBA in prison. The first-mentioned author concludes with an important personal message, borne …

Strength Of Bond Covenants And Bond Assessment Framework, Noel Yahanpath, Szekee Koh

Australasian Accounting, Business and Finance Journal

We examine bond covenants of 29 New Zealand bond issues between 2001 and 2007. Results from the study indicate that protection provided for bondholders is weak and limited. On average, only 2-3 types of covenants are embedded with the issues and only 27% of these covenants provide full protection to the bondholders. However, bondholders are not compensated for taking the additional risk. We propose an alternative assessment framework that directly assesses the level of protection offered to bondholders. We calculate the covenant quality score for the issues and classify them into four levels of protection: very high protection, moderate, low …

The Usefulness Of Financial Statement Information In Predicting Stock Returns: New Zealand Evidence, Jonathan Goslin, Daniel Chai, Abeyratna Gunasekarage

Australasian Accounting, Business and Finance Journal

This study examines whether financial statement information can be used to implement an investment strategy in order to earn abnormal returns. Using financial statement information, we develop multiple logit models that predict either the year-ahead earnings changes (earnings-based approach) or the direction of stock returns (returns-based approach). The study labels the earnings-based approach as the ‘indirect method’ and the returns-based approach as the ‘direct method’. The coefficient estimates of these models are used to generate Pr measures which are used to formulate investment strategies. Specifically, an investment strategy that involves buying stocks with high Pr values and selling stocks with …

Accounting Change And Institutional Capacity: The Case Of A Provincial Government In Indonesia, Harun Harun, Haryono P. Kamase

Australasian Accounting, Business and Finance Journal

This study examines a reporting system change of a provincial government in Indonesia. The study also draws attention to the institutional capacity of the provincial administration and implementation problems it encountered in adopting an accrual accounting system. Following the work of Lapsley and Pallot (2000), this study uses economic and institutional perspectives in conceptualising how an accounting change has been undertaken. The study shows that from an economic based perspective, the adoption of the new reporting system was stimulated by the wish to improve government organisations’ performance in the country. It is also found that the change of the reporting …

Legitimising Corporate Sustainability Reporting Throughout The World, Faisal Faisal, Greg Tower, Rusmin Rusmin

Australasian Accounting, Business and Finance Journal

This paper explores corporate sustainability disclosure practices in a global context. A unique sample of 2009 sustainability reports from some of the world’s largest companies in 24 diverse countries are examined using a comprehensive disclosure index. These reports are analysed to better understand how company characteristics and institutional factors explain sustainability communication using a legitimacy theory framework. The world renowned Global Reporting Initiative 2006 guidelines are used as the benchmark disclosure index checklist. The empirical results indicate that the average level of sustainability disclosure is a surprisingly high 61.9 percent. Statistical analysis indicates that high profile industries and additional assurance …

Does Board Independence Matter? Evidence From New Zealand, Hardjo Koerniadi, Alireza Tourani-Rad

Australasian Accounting, Business and Finance Journal

This paper examines the effects of the presence of independent directors on firm value using both market-based performance measures (Tobin’s Q ratio and EVA) and accounting-based ratios (ROA and ROE). We find that, instead of adding value, independent directors in New Zealand negatively affect firm value. We also find that, consistent with stewardship theory, independent directors have a positive effect on firm value only when they are in the minority. These findings are important given the increasing trend toward independence in corporate boards around the globe and suggest that board independence may not generally be suitable for countries where managers …

Editorial Volume 6 Issue 2, Ciorstan Smark

Australasian Accounting, Business and Finance Journal

This issue of AABFJ has several finance articles from a New Zealand context. Koerniadi and Tourani-Rad (2012) examine board independence and firm value. Goslin, Chai and Gunasekarage (2012) consider whether financial statement information can be used to earn abnormal returns. Finally, Yahanpath and Koh (2012) look at bond covenants and the extent to which they offer protection to bondholders.

The Moral Reasoning Of Public Accountants In The Development Of A Code Of Ethics: The Case Of Indonesia, Michael Gaffikin, Asl Lindawati

Australasian Accounting, Business and Finance Journal

The objective of this study is to explore the user’s perceptions of the role of moral reasoning in influencing the implementation of codes of ethics as standards and guidance for professional audit practice by Indonesian public accountants. The study focuses on two important aspects of influence: (i) the key factors influencing professional public accountants in implementing a code of ethics as a standard for audit practice, and (ii) the key activities performed by public accountants as moral agents for establishing awareness of professional values. Two theoretical approaches/models are used as guides for exploring the influence of moral reasoning of public …

Anybody Can Do Value At Risk: A Nonparametric Teaching Study, Yun Hsing Cheung, Robert J. Powell

Australasian Accounting, Business and Finance Journal

Value at Risk (VaR) has become a benchmark methodology among investors and banks for measuring market risk. Commercially available modelling packages can be both expensive and inflexible, thereby restricting their use by academic researchers and teachers. Using nonparametric methodology, this paper provides a step-by-step teaching study on how to use Excel to construct a VaR spreadsheet for an individual asset as well as for a portfolio. This can benefit financial modelling teachers by providing them with a readily useable teaching study on how to model VaR, as well as benefit researchers by showing them how to construct an inexpensive and …

Stock Market Reaction To Terrorist Attacks: Empirical Evidence From A Front Line State, Muhammad Tahir Suleman

Australasian Accounting, Business and Finance Journal

The world financial markets have reacted in a highly consistent pattern to the incident of 9/11 in the United States, suicide blasts at night clubs at Bali in 2002, the Madrid and London train bombings in 2004-2005 and a series of continuous blasts and suicide attacks in Pakistan. In this study, we examined the effect of terrorist attack news on returns and volatility for the Karachi Stock Exchange. We employ the EGARCH model proposed by Engle and Ng (1993) as it allows good and bad news to have a different impact on volatility. Our results ndicate that terrorist attack news …

Gdp Growth And The Interdependency Of Volatility Spillovers, Indika Karunanayake, Abbas Valadkhani, Martin O’Brien

Australasian Accounting, Business and Finance Journal

This paper examines the dynamics of cross-country GDP volatility transmission and their conditional correlations. We use quarterly data (1961-2008) for Australia, Canada, the UK and the US to construct and estimate a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model. According to the results from the mean growth equations, we identified significant cross-country GDP growth spillover among these countries. Furthermore, the growth volatility between the US and Canada indicates the highest conditional correlation. As expected, we also found that the shock influences are mainly exerted by the larger economies onto the smaller economies.

Unrelated Diversification And Firm Performance: 1980-2007 Evidence From Italy, Maurizio La Rocca, Raffaele Staglianò

Australasian Accounting, Business and Finance Journal

The goal of this article is to examine the relationship between unrelated diversification and performance. Results indicate that diversified firms, investing in activities far from the core business, have high performance. Unrelated diversification positively affects firms’ performance. In addition, the estimation methods applied are fundamental in order to verify if there are endogeneity problems in the diversification decision and evaluate the effective role of diversification on performance.

Ownership Structure And Earnings Management: Evidence From Portugal, Sandra Alves

Australasian Accounting, Business and Finance Journal

This paper examines the relationship between corporate ownership structure in Portugal and earnings management. The Portuguese governance structure is characterised by the dominance of the largest shareholder who typically exercises significant influences on management decisions directly or indirectly. Existing literature suggests that ownership structure decreases the incentive to manage earnings but also provides the opportunity and incentive to anipulate earnings. Therefore, the main purpose of this paper is to analyse whether a firm’s ownership structure (measured with three variables: managerial ownership, ownership concentration and institutional ownership) exacerbate or alleviate earnings management. Using a sample of 34 non-financial listed Portuguese firms …