Australian Securities Exchange Research Articles

On the Distribution of the Mixed-Lognormal-Weibull Option Pricing Model

This paper intends to test whether the Mixed-Lognormal-Weibull Distribution (MLWD) option pricing model comes from the same distribution and whether the model is a good fit in Black-Scholes option pricing model. The data for this study were obtained from Australian Clearing House of Australian Securities Exchange (ASX) which consist of 50 enlisted stock as products of monthly market summary for long term options collected from January, 3rd 2017 to December, 31st 2017, comprising 720 trading days arranged in accordance to 25, 27, 28, 29 and 30 maturity days. Maximum Likelihood Estimate was used to obtain the parameters of both the lognormal and Weibull distributions which were applied in Black-Scholes model. The data were test Wilcoxon Rank Sum test since the mixture model became distribution and Chi-square goodness-of-fit test for the model fit, and the result shows that the mixture model does not follow any of the lognormal or Weibull distributions. The result also shows that the mixture model is a good fit in Black-Scholes option pricing model with the P-value>0.05 when they are shorter maturity days with small sample sizes than longer maturity days with larger sample sizes. Hence, the model is recommended to be used for financial practitioners who are interested in modeling option pricing.

Women in the workforce and climate change performance: the moderating role of environmental management training

ABSTRACT This study examines the relationship between gender and carbon emissions, specifically focusing on the influence of female leadership roles and female employees on carbon emissions from 2012 to 2021 in companies listed on the Australian Securities Exchange. While gender socialisation theory suggests that women are naturally inclined to care for the environment, our results do not fully support the argument that more female directors and employees alone can combat carbon emissions significantly. However, our findings indicate that when employees receive environmental management training, the presence of female directors significantly reduces carbon emissions. This result highlights that informal education alone, as emphasised in gender socialisation theory, is insufficient for addressing carbon emissions of companies. The findings suggest the importance of having more women in leadership positions as well as providing formal training and education for employees to reduce carbon emissions.

Does corporate green innovation unlock financial doors? The mediating role of environmental performance

Purpose This study aims to respond to the latest research calls to precisely revisit the nexus between corporate green innovation (CGI) and financial decisions through deeply investigating the mediating effect of corporate environmental performance measured by the effectiveness of emission reduction. Design/methodology/approach This study analyzes nonfinancial-listed firms on the Australian Securities Exchange from 2002 to 2019 using multiple regression analysis on a panel data set. Initially, different static panel data approaches were used. To account for the potential endogeneity issue and generate robust outcomes, the authors apply the one-step system generalized method of moment, two-stage least squares and lagged model approaches. Findings The results provide a clear indication that the practices of green innovation can favorably contribute to the level of environmental performance, which in turn affect the firm’s ability in opening the new financial doors and shape solid capital structure. In this context, the effective environmental performance fully mediates the nexus between CGI and capital structure of a firm. More importantly, the outcomes are robust and coherent across different estimation techniques. Originality/value The originality of this study lies in its utilization of mediation analysis to explore the relationship between CGI and a firm's financial structure. This approach distinguishes it from previous research by offering a thorough and nuanced understanding of how green innovation practices influence the financing decisions of a firm.

Deep Reinforcement Learning Approach to Portfolio Optimization in the Australian Stock Market

The future of portfolio management is evolving from relying on human expertise to incorporating artificial intelligence techniques. Traditional techniques such as fundamental and technical analysis will eventually be replaced by more sophisticated deep reinforcement learning (DRL) algorithms. However, it is still a long way from designing a profitable strategy in the complex and dynamic stock market. While previous studies have focused on the American stock market, this paper applies two DRL algorithms, the proximal policy optimization (PPO) and the advantage actor–critic (A2C), to trade the constituent stocks of the Australian Securities Exchange 50 (ASX50) Index. This paper also incorporates a weighted moving average into the action space and introduces a transaction threshold to help agents minimize trivial trades that lead to high transaction costs. The results are presented and benchmarked against the ASX50 Index. The A2C agent was better at following trends and had the higher upside potential but can suffer from more severe damage during bearish markets. On the other hand, the PPO agent had the lowest annual volatility and the highest maximum drawdown, which is more helpful in a bearish or volatile market.

Motives for environmental and social engagement and stock liquidity: The moderating role of sustainability committees

While stock liquidity has long been a vital consideration in stock markets, environmental, social and governance (ESG) performance has become a growing consideration due to its numerous benefits to companies and society. However, there is limited research on whether corporate motivations to engage in ESG activities affect stock liquidity. We examine this relationship in the context of the Australian Securities Exchange (ASX) by studying the role of three motivations (strategic, altruism, or greenwashing) for company engagement in ESG activities in explaining stock liquidity. We also examine the role of sustainability committees in explaining stock liquidity. Using companies included in the S&P ASX 300 from 2009 to 2018, a positive association is found between stock liquidity and a strategic motivation for environmental and social engagement and sustainability committee presence. An unexpected finding is that sustainability committee formation can mislead investors to reward a greenwashing motivation by improving stock liquidity. These findings provide valuable new insights into motives to engage particularly with the “E” and “S” in ESG and sustainability committees' role in improving stock liquidity.

Board sub-committee effectiveness, director attraction and director attrition: Do nomination and remuneration committees matter?

This study examines whether the effectiveness of board subcommittees is associated with director attrition and the attraction of new directors to boards. Using a sample of firms listed on the Australian Securities Exchange, we find that nomination and remuneration committee effectiveness is inversely associated with director attrition and positively related to new external directors joining boards. The results suggest the contribution of these subcommittees to improve corporate governance by strengthening the board's human capital through recruitment and retention of suitable talent. Furthermore, the influence of subcommittee effectiveness on attrition (attraction) is more pronounced in firms experiencing higher levels of information asymmetry, weaker governance quality and poorer performance. The results are robust to tests with alternative variables, entropy balanced matching, and additional controls. Overall, our findings show that improved governance through effective subcommittees helps maintain and enhance the human capital of boards.

The Impact of Corporate Governance on Financial Decision-making: Evidence from Non-financial Institutions in the Australian Securities Exchange

The Impact of Corporate Governance on Financial Decision-making: Evidence from Non-financial Institutions in the Australian Securities Exchange

The impact of board capital on total value reporting: evidence from the Australian health care sector

PurposeThis study investigates the association between board gender diversity and multiple directorships, two board characteristics representing human, social and relational capital and the extent to which corporate reporting (using the double materiality principle) explains value creation for the organization, environment, society and the economy, which we define as total value reporting.Design/methodology/approachThis study uses a disclosure index developed based on the Integrated Reporting Framework and the Global Reporting Initiative (G4) guidelines to analyze disclosures made using the double materiality principle and reflect the value created by companies. The sample includes corporate reports of 102 Australian Securities Exchange (ASX) companies in the Health Care sector. Ordinary least squares regression analyses test the relationship between board gender diversity and multiple directorships and the quality of total value reporting (and its subcomponents) with appropriate control variables.FindingsFindings reveal that human, social and relational capital formed through multiple directorships and gender-diverse boards is positively related to the quality of total value reporting. Results hold for alternative measures and sensitivity tests of gender diversity and multiple directorships.Practical implicationsOur study reveals that (1) the <IR> Framework, when combined with the GRI Framework, effectively measures connected information quality under a double materiality perspective for total value reporting; (2) enhancing board effectiveness for total value reporting is achievable by increasing female directors and those with multiple directorships; (3) limitations in accessing experienced directors, particularly women, do not disadvantage countries like Australia and (4) directors holding multiple board positions are pivotal in disseminating best practices in corporate governance and reporting across various companies and industries.Social implicationsOur research reveals that gender diversity on corporate boards transcends mere representation, significantly enhancing how firms articulate their value to stakeholders. This finding underscores the urgency for public policies to advocate for increased female board representation. Additionally, our findings indicate that board diversity, encompassing gender, experience, industry background and cultural perspectives, can elevate transparency in reporting, crucial for attracting global investors, particularly in emerging markets.Originality/valueOur study is an early attempt to examine total value reporting – underpinned by double materiality – which reports on how companies create value for themselves, the environment and society. It is one of the first to identify drivers of reporting based on double materiality.

Do board networks matter for corporate cash holdings? Evidence from Australian firms

PurposeIn today’s interconnected world, social capital has emerged as a crucial business competence, drawing significant attention in recent literature. Using social network analysis, this study aims to investigate the impact of network centrality, established by a firm through its board members (i.e. boardroom networks), on corporate cash holdings.Design/methodology/approachThis study uses extensive panel data comprising 36,963 firm-year observations of firms listed on the Australian Securities Exchange, spanning a 22-year period (2001–2022). The study uses firm fixed-effect regression along with several alternative specifications and an instrumental variable approach to ensure the robustness of the results. Boardroom network centrality is quantified by five measures that capture different perspectives on networks as viable conduits for resource exchange and information flow: degree, two-step reach, closeness, eigenvector and betweenness.FindingsThe authors find evidence for the benefits of board networks. Firms with well-connected boards (central firms) are more likely to have smaller cash holdings. The findings also reveal distinct effects stemming from local and global properties of centrality, with local network measures playing a more pronounced role in shaping cash-holding decisions. Overall, the evidence reflects the ability of connected directors to enhance governance by limiting managerial discretion over cash reserves, thus reducing agency conflicts associated with cash holdings.Research limitations/implicationsThis study offers important insights for regulators, investors and practitioners, highlighting the potential for connected directors to effectively curtail managerial autonomy in deploying corporate cash holdings.Originality/valueThis study contributes to the ongoing discussion about the advantages and drawbacks of board networks, which constitute a vibrant and burgeoning area of research in the finance literature. It also complements scanty network-based studies on firm cash holdings. Importantly, this study extends prior work by providing robust evidence and a comprehensive analysis of the nuanced roles that board networks play in affecting the level of cash reserves.

Risk Committee and Integrated Reporting Practice: Evidence from Australian Companies

AbstractThis study investigates the relationship between the risk committee (existence and effectiveness) and the quality of integrated reports of the top 200 listed companies on the Australian Securities Exchange (ASX). A composite ordinal proxy for the firms’ integrated reporting was constructed using data that were hand‐collected from annual reports. The main result reports that the existence of a standalone risk committee is negatively and significantly associated with the quality of integrated reporting; however, integrated reporting is positively associated with firms adopting a combined risk and audit committee and risk committee effectiveness.

Board committees as catalysts: Divulging the impact of nomination and risk management on corporate eco‐innovation and carbon performance

AbstractDrawing on a theoretical integration perspective, this research responds to the latest calls in sustainability accounting by comprehensively exploring the moderating roles of two board sub‐committees: the nomination committee and the risk management committee, in the relationship between corporate eco‐innovation and carbon performance. This study contributes to the current literature in sustainability accounting by utilizing panel data from non‐financial listed firms on the Australian Securities Exchange (ASX) for the period spanning from 2011 to 2022. To mitigate potential endogeneity bias, various econometric techniques, including instrumental variable modeling, were employed. The robust findings confirm a positive and statistically significant relationship between eco‐innovation and carbon emissions reduction. Moreover, both the nomination committee and the risk management committee emerge as significant moderators of this relationship. These empirical findings hold valuable practical, theoretical, and policy implications for diverse stakeholders seeking a comprehensive understanding of the role of board sub‐committees as effective monitoring tools that support corporate carbon performance by encouraging firms to actively embrace eco‐innovation practices. As a result, our evidence underscores the significance of giving due attention to board sub‐committees when configuring the board's structure and setting expectations for carbon reduction performance.

Climate change disclosure performance and audit fees: evidence from Australia

Purpose This study aims to examine the relationship between climate change disclosure performance (CCDP) and audit pricing. The moderating effect of corporate governance characteristics on that relationship is also investigated. Design/methodology/approach Using a sample of top 300 Australian Securities Exchange listed non-financial firms over the period 2008–2019, this study investigates the association between CCDP and audit fees. The findings are robust to a difference-in-difference test thereby alleviating potential endogeneity concerns. Findings CCDP is found to be significantly positively related to external auditor fees. Research limitations/implications The findings show some important implications for firm management, regulators, investors and auditors. This study presents empirical evidence that climate change, as a factor of external risk, influences audit fees. Practical implications Firms with governance structures characterized by larger more independent boards, larger audit committees and audit committees with a higher level of independence significantly moderate the relationship between CCDP and audit fees. Social implications Investors’ demand for firm transparency and disclosure of information regarding the risks of climate change, effects and opportunities has increased significantly over the past decade, as these factors could have a significant effect on valuation and investment decisions. Originality/value Importantly, stakeholders need to be aware of the costs of climate change, the quantification of climate change impacts and how firms address climate change in their business risk management processes. This study quantifies the impact of CCDP on auditor risk assessments via audit fees.

Exploring the spatialisation of the performance of residential REITs investment and direct investment in the housing market

ABSTRACT Despite numerous studies about the housing sector, the connection between the performance of residential real estate investment trusts (REITs) investment and direct investment in the housing market is still under-researched. To help fill this gap, we used quarterly data of the Australian Securities Exchange (ASX) residential REITs index and direct housing returns of Australia and its major cities, spanning March 1983 to June 2021, and adopted a suite of econometric methods to document the following findings. First, publicly listed housing (residential REITs) and private housing markets are not separated, but both are closely related in terms of their investment performance. Second, the performance of direct investment in the housing market of Adelaide, Brisbane, Melbourne and Sydney could lead to positive investment performances for residential REITs over time, while no comparable evidence is found for Canberra, Darwin, Hobart and Perth. Third, further analyses revealed a one-way direction of performance, flowing from the housing market of Brisbane, Melbourne and Sydney to residential REITs, while no similar evidence of performance flow was found for Adelaide. Our study has provided new evidence that could contribute to the discussion on the expansion of residential properties in the portfolio of institutional investors.

COVID-19-related announcements in a continuous disclosure environment: drivers and stock market implications

PurposeThe purpose of this research note is to investigate the drivers and market reaction to firms’ decision to release general COVID-19-related announcements and to withdraw earnings forecasts and dividends during the COVID-19 pandemic in the continuous disclosure environment of Australia.Design/methodology/approachThe authors first tracked the market reaction of all firms in the Australian Securities Exchange All Ordinaries, Top 300, Top 200 and Top 100 indices during the early period of the COVID-19 pandemic between 1 January and 21 September 2020. The authors then focus the investigation on the incidence of firms deciding to withdraw earnings forecasts and dividends and how the market responded to these incidences during that period.FindingsThe market reacted negatively during the March/April 2020 period but then bounced back to the pre-March 2020 level. The market reaction is mainly driven by three industries, including consumer discretionary, health care and utilities. Firms in industry sectors such as consumer discretionary, materials, health care and information technology contribute to the highest percentage of COVID-19 announcements. It is interesting to document that firms issuing COVID-19 announcements and withdrawing earnings forecasts and dividends tend to be larger firms with stronger financial performance and higher financial leverage. Regarding the stock market reaction, while the market generally reacted positively to COVID-19-related announcements, the decision to withdraw earnings forecasts and dividends is significantly regarded as bad news.Originality/valueThe COVID-19 pandemic has provided a unique natural event to examine firms’ disclosure behaviour in the continuous disclosure environment of Australia during this period of extreme uncertainty. The incidences of earnings forecasts and dividend withdrawals are mainly driven by larger, better performing and higher leverage firms in the consumer discretionary, health care, materials and information technology industry sectors. The market generally reacted favourably to COVID-19-related announcements, despite a significant stock price drop during the March/April 2020 period. The findings provide important regulatory and practical implications.

Does Audit Committee Busyness Affect Financial Restatement? Evidence from Audit Committee Share Ownership

We examine the association between audit committee (AC) busyness and financial restatement and determine whether AC share ownership moderates this relationship. Using logit regression analysis, we test our hypotheses on a sample of 6408 firm‐year observations from 2004 to 2015 for companies listed on the Australian Securities Exchange. The study reveals that firms with busy ACs engage more in financial restatements. We also find that AC share ownership reduces financial restatements and attenuates the association between AC busyness and financial restatement. Our results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to AC members. The findings of this research have several important policy implications. For instance, shareholders can benefit from AC members’ monitoring ability by allowing for share ownership. Further, our findings suggest that principles‐based corporate governance guidelines have a beneficial effect on financial reporting quality. While prior studies offer mixed evidence, our research contributes to the auditing literature by providing evidence that AC share ownership moderates the association between AC busyness and financial restatement.

Corporate name change: the effect of the firm’s shareholder distribution

ABSTRACT This study explores the effect of corporate ownership structure on firm performance resulting from a firm’s strategic decision of corporate name change. First, the study uses the separation of ownership and control to capture the corporate ownership structure using a new shareholder distribution metric. Second, the study empirically estimates the main and interaction effects of shareholder distribution on a firm’s performance resulting from its corporate name change using data from the Australian Securities Exchange from 2017 to 2022, during which 457 unique firms changed their corporate names. The study finds shareholding distribution has contrasting effects on firm performance due to the corporate name change. The positive impact of shareholder distribution on a firm’s abnormal returns is attenuated due to the corporate name change. Thus, while a manager-controlled firm, characterized by its larger shareholder distribution, reaps more benefits, such benefits are reduced when it makes strategic decisions, such as corporate name change. The study attributes such reduction in firm benefit to owner-manager conflict emanating from a firm’s dispersed corporate ownership structure.

Exploring the Accounting Treatment of Exploration and Evaluation Activities in the Extraction Industry in South Africa and Australia

The study examines the accounting treatment of exploration and evaluation assets in the extraction industry in South Africa and Australia. This study adopted a qualitative research approach and purposive sampling techniques. Data was collected from 60 entities in the extraction industry that are listed on the Johannesburg Stock Exchange (JSE) and the Australian Securities Exchange (ASX). The study found that South African entities classify exploration and evaluation assets as tangible or intangible assets using International Financial Reporting Standard (IFRS) 6. The study also observed that Australian entities classify exploration and evaluation assets as a separate class of assets using the Australian Accounting Standard Board (AASB) 6. South African entities depreciated or amortized exploration and evaluation assets, while Australian entities did not. The study concluded that even though there is high adoption of IFRS 6 or AASB 6, comparability is compromised in the extraction industry. The study recommended that IFRS 6 not offer a choice between IAS 16 or IAS 38 for the classification of exploration and evaluation assets to improve comparability and aid effective decision-making.

Audit partners’ gender and time variances of key audit matters

PurposeThis study aims to examine whether audit partners’ gender affects the year-to-year changes (year-to-year additions and drops) of key audit matters (KAMs) identified in the audit report. This study also examines whether female audit partners’ audit experiences, accounting education and narcissism reduce the difference in time variances of KAMs reporting between female and male audit partners. This study defines the year-to-year additions and drops of KAMs as the time variance of KAMs.Design/methodology/approachData of this study includes the audit reports of Australian Securities Exchange 300 companies for the period from 2017 to 2021. This study also applies the theory of female auditors’ preference for anchoring and availability heuristics. This study uses multivariate regression with robust standard errors clustered by the firms. This study also uses several robustness tests.FindingsThe findings suggest that female audit partners disclose fewer time variant KAMs in that they have a lower tendency both to add new KAMs and to drop old KAMs. Further analysis suggests that the differences between female and male audit partners decrease as the female audit partners’ experience increases or if the female audit partner possesses a bachelor’s degree in accounting. Female audit partners’ narcissism also reduces the gender gap in the time variances of KAMs.Practical implicationsThe fact that female audit partners report more stable KAMs implies that there are differences between female and male audit partners in the way audit risk assessments are conducted, audits are planned and professional judgement is applied by female and male audit partners.Social implicationsThe findings imply that female audit partners’ experience, accounting education and narcissistic personality can play a significant role in explaining the differences in audit outcomes produced by male and female audit partners.Originality/valueThis study is novel in showing that female audit partners report more stable and less time-variant KAMs. The findings of this study may inform audit firms and regulators that female audit partners’ experience, tertiary qualifications in accounting and narcissistic personality traits may be effective means of reducing the gender gap in auditing. The findings also imply that auditors’ observable and unobservable personality traits affect audit outcomes.

CEO tenure, board monitoring and competitive corporate culture: how do they influence integrated reporting?

PurposeThis study aims to explore the association between chief executive officer (CEO) tenure and the quality of information disclosed through integrated reporting quality (IRQ), which combines financial and non-financial data. The authors also investigate how formal (e.g. board independence and gender diversity) and informal (e.g. corporate culture) governance mechanisms influence this association. By analysing these factors, the authors expect to provide valuable insights on the impact of CEO tenure and governance structures on the comprehensive nature of integrated reporting.Design/methodology/approachThis study uses a sample of the top 200 Australian Securities Exchange (ASX)-listed companies from 2015 to 2019. IRQ is measured through levels of compliance with the integrated reporting (IR) framework proposed by the International Integrated Reporting Council (IIRC). The hypotheses are tested using multiple regression analyses.FindingsThe authors find that CEO tenure is negatively associated with IRQ. Furthermore, CEO tenure has a more positive influence on IRQ in the early CEO tenure years than later ones. The authors' study finds that the association between CEO tenure and IRQ is insignificant when firms have a high level of monitoring, as measured by board independence and gender diversity. The authors also document that competitive corporate culture moderates the negative association between CEO tenure and IRQ.Originality/valueThe authors' study highlights the significant impact of internal formal and informal governance mechanisms on disclosure practices in Australia's voluntary IR environment. By shedding light on these factors, the authors' research enhances understanding of Australian companies' IR practices and offers valuable insights for scholars, policymakers and practitioners in the field.

CSR Restatements: Mischief or Mistake?

ABSTRACT Using a sample of Australian Securities Exchange Ltd. (ASX) 500 firms over the 2004–2020 period, we find that contracting on corporate social responsibility (CSR) increases the likelihood of CSR restatements and that these restatements are biased toward showing improvements in CSR performance for the current period. This is especially the case when firms contract on social CSR performance measures. We also find that CEOs’ short-term incentive compensation is significantly greater when restatements result in improved comparative performance, but only for firms that contract on CSR. Overall, our results suggest that contracting on CSR is another explanation for the increasing prevalence of CSR restatements and that standard setters should address metrics and measures when formulating policies with respect to CSR reporting. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M12; M14; M52.