To improve accountability of executive compensation, Australia introduced the 'say-onpay' legislation in 2011, which is widely known as the 'two-strikes' rule. We investigate the consequences of this new rule for the pay-performance link in Australian firms. Employing a matched-pair design, we find that pay changes of the chief executive officer and the key management personnel were not significantly positively related to the stock returns of the firms that registered a 'first strike' in 2011 under the 'two-strikes' rule. However, the relations improved significantly in 2012. Our results also suggest that the shareholders of the 'first-strike' firms may have been over-enthusiastic about their voting power in 2011 but exercised this power more judiciously in 2012. Our findings provide important insights for the global debate on governance of executive compensation. Australia's 'two-strikes' rule and the pay-performance link: Are shareholders judicious? Related Party Disclosures (AASB, Melbourne, Vic).
Following the withdrawal of IFRIC 3: Emissions Rights in 2005, European Union (EU) companies participating in an EmissionsTrading Scheme (ETS) do not have definitive guidelines as to how to account for carbon emissions allowances. Using a content analysis methodology, this study examines the disclosed accounting policies of companies participating in the EU ETS, and reveals how, in the absence of clear guidance, they account for their carbon emissions allowances. As the accounting method adopted will impact upon a company's financial statements, these findings are of interest to accounting standards setters, investors, financial reporting preparers, auditors, and researchers.
Purpose -The purpose of this paper is to identify factors that affect corporate governance in Australian state government departments. Design/methodology/approach -A qualitative analysis of semi-structured interviews with 65 executives and middle managers from 25 departments across Australia is used. The interviews identified managers' perceptions of the structures and practices of governance in four nominated areas: strategic planning, auditing, risk management and capacity building. A social capital model is utilised to analyse the data along structural, relational and cognitive dimensions. Findings -Aligned with the structural dimension, frequent departmental and leadership changes and the size and complexity of departments are reported as major barriers to good governance, while well-structured committees are perceived to strengthen governance. Aligned with the relational dimension, a culture of good working relationships between staff and strong leadership are recognised as critical for strong governance while, aligned with the cognitive dimension, a lack of shared understanding of risk, a short-term focus, and unclear individual roles and organisational goals are seen as barriers to effective governance. Research limitations/implications -The evidence is based on perceptions of participants and may not reflect actual practices nor the perceptions of others. Originality/value -A contribution of this study is the application of social capital theory to advance understanding of public sector governance. The study adds insights into the behavioural and organisational factors that encourage or impede effective governance based on the experiences of managers from key governance functions.
Purpose: This paper examines the relative predictive ability of earnings, cash flow from operations as reported in the cash flow statement, and two traditional measures of cash flows (i.e. earnings plus depreciation and amortisation expense, and working capital from operations) in forecasting future cash flows for Australian companies. Further, an empirical investigation of the extent to which firm size, as a contextual factor, influences the predictability of earnings and cash flow from operations is presented. Methodology: Our sample includes 323 companies listed on the Australian Stock Exchange between 1992 and 2004 (3,512 firm-years). We employ the ordinary least squares and fixedeffects approaches to estimate our regression models. To evaluate the forecasting performance of the regression models, both within-sample and out-of-sample forecasting tests are employed. Findings: We provide evidence that reported cash flow from operations has more power in predicting future cash flows than earnings and traditional cash flow measures. Further, the predictability of both earnings and cash flow from operations significantly increases with firm size. However, the superiority of cash flow from operations to earnings in predicting future cash flows is robust across small, medium and large firms.
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