Australian Securities Exchange Research Articles

Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data

Market liquidity has an immediate impact on the execution of transactions in financial markets. Informed counterparty risk is often priced into market liquidity. This study investigates whether microblogging data, as a non-financial information tool, is priced along with market liquidity dimensions. The analysis is based on the Australian Securities Exchange (ASX), and from the results, we conclude that microblogging content in pessimistic periods has a higher impact on liquidity and its dimensions. On a daily basis, pessimistic investor sentiments lead to higher trading costs, illiquidity, a larger price dispersion and a lower trading volume.

How noise trading affects informational efficiency: Evidence from an order-driven market

We use full order book data from the Australian Securities Exchange to investigate how noise trading affects informational efficiency of securities prices. In aggregate, noise trading harms price efficiency. However, this is driven mainly by higher levels of noise trading, indicating a non-linear effect. Further, behind the aggregate effects lies rich heterogeneity in how noise trading affects informational efficiency cross-sectionally. Noise trading harms informational efficiency of large and liquid stocks but can be beneficial in small and illiquid stocks, indicating that noise trading affects different stocks differently.

The impact of algorithmic trading on liquidity in futures markets: New insights into the resiliency of spreads and depth

AbstractThis paper examines the impact of algorithmic trading on the resiliency of bid‐ask spreads and market depth. We use a natural experiment provided by the Australian Securities Exchange (ASX) for futures markets in 2012—the introduction of collocated facilities for FCM's. Previous research demonstrates that the change on the ASX in 2012 increased algorithmic trading and improved liquidity. We extend this study by documenting that the sensitivity of bid‐ask spreads and market depth to price volatility and trading activity declines after the introduction of co‐location. We also find that the speed of recovery of liquidity to large trades is more rapid after the introduction of colocated facilities. These results are consistent with the hypothesis that algorithmic trading reduces the time that limit orders are alive and the adjustment of quotes to new information and market volatility which in turn increases the resilience of liquidity.

Integrated reporting and board characteristics: evidence from top Australian listed companies

PurposeDrawing upon agency theory, this study analyses the influence of board characteristics on integrated reporting (IR) for the top 50 companies listed on the Australian Securities Exchange (ASX50). Focus is placed on IR at the aggregate level as well as its separate components, namely Future Opportunities and Risks (FOPRI), Governance and Strategy (GOVSTR), Performance (PERF), Overview and Business Model (OBM) and General Preparation and Presentation (GPP).Design/methodology/approachA checklist is devised based on the IIRC (International Integrated Reporting Council) framework to track companies' disclosures for the period from 1st July 2014 to 30th June 2017. Regression analysis is used to investigate the determinants (board size, board independence, activity of the board, gender diversity, firm size, profitability and growth opportunities) of IR and its separate components.FindingsThe findings indicate a significant and positive effect of board independence on the aggregate IR index, FOPRI and GPP. A negative and significant association is found between activity of the board and both the aggregate IR index and its separate components, including GOVSTR, PERF and GPP. Additionally, the aggregate IR index is significantly related to firm size, profitability and growth opportunities.Research limitations/implicationsThe limited sample of 50 companies over three years is the main limitation of the study. The study suffers from an inherent limitation from the use of content analysis in assessing the level of IR. No checklist to measure the level of IR can be fully exhaustive. Furthermore, we focus on whether an item in the checklist is disclosed, using a dichotomous scale, thus ignoring the quality of information disclosed.Practical implicationsThe study has several practical implications. From a managerial perspective, it shows that having more board meetings harms the level of IR. The results can guide regulators, such as the Australian Securities and Investment Commission (ASIC) and the Australian Securities Exchange (ASX), when drafting new regulations/guidelines/listing rules. If regulators aim for a higher level of integration in the reports, they know which “triggers to pull” to attain their target. Our results can guide regulators to choose the appropriate trigger among various alternatives. For instance, if a higher level of integrated reporting is desired, size instead of profitability should be chosen. Finally, ASX listed companies can use our checklist as a scorecard for their self-assessment.Originality/valueThis research is the first to investigate IR by devising a checklist based on IIRC (2013) along with an additional GPP component in the ASX context. Using separate models to examine each component of the aggregate IR index is also unique to this study. The study also brings to the fore the role of gender-diverse boards in promoting IR. It reiterates the debate about imposing a quota for better gender representation on boards.

Dynamic volatility spillover and network connectedness across ASX sector markets

This study measures dynamic volatility spillovers and identifies the connectedness network across 11 Australian Securities Exchange (ASX) sector indices using the spillover index methodology of Diebold and Yilmaz (J Econ 182:119–134, 2014). Additionally, we visualize volatility connectedness relationships as links within a complex network to capture the propagation path of volatility connectedness across the 11 ASX sectors. Our results indicate that recent financial crises intensified the degree of volatility connectedness across the 11 ASX sectors, supporting the contagion hypothesis. Importantly, the financial sector is the main transmitter of volatility connectedness across the 11 ASX sector markets.

Epithermal Precious Metal Deposits in South Korea—History and Pursuit

Abstract The gold and silver endowment of Korea has historically been well known, with records alluding to production as far back as 1122 BC. The main gold production period was from 1925 to 1943 during the Japanese occupation of Korea, with more than 1 Moz recorded in 1939. Muguk was the most productive gold mining operation, located within the central region of South Korea, with a recorded 590 koz of gold produced from 1934 to 1998 (first mined in AD 912). The majority of the historical mining operations were closed by government order in 1943 during the Second World War and never reopened. A number of small mines operated between 1971 and 1998, with limited production during a period of gold prices generally lower than at present (~25–50% of current inflation adjusted prices, apart from a four-year period 1979–83). It is likely that significant resources remain within these historical mining areas. Gold-silver deposit types historically recognized and exploited in Korea include placers and orogenic and intrusion-related vein systems. Only more recently have epithermal vein and breccia systems been recognized. This is not surprising, given that the geologic and tectonic setting of the Southern Korean peninsula is prospective for epithermal precious metal deposits, spatially associated with basin-scale brittle fault systems in Cretaceous volcanic terranes. South Korea is an underexplored jurisdiction, with limited modern exploration and drilling until the mid-1990s, when Ivanhoe Mines Ltd. discovered the Gasado, Eunsan, and Moisan epithermal gold-silver deposits, all of which became mines. Exploration was limited for another 20 years until Southern Gold Ltd., an Australian Securities Exchange (ASX)-listed company, commenced regional-scale exploration for epithermal deposits, using a strategy similar to that successfully employed by Ivanhoe.

Effect of coronavirus fear on the performance of Australian stock returns: Evidence from an event study

Using an event study methodology and a sample of 478 firms listed on the Australian Securities Exchange, we find the following results. First, coronavirus fear significantly and adversely affected the returns of many sectors, small-, medium- and large-sized stocks. Second, coronavirus fear was a source of return drift in the Australian stock market. Our results suggest that investors underreacted to coronavirus fear, and this underreaction was prevalent across a range of sectors and firm size categories. We also find that had investors adopted a short selling strategy for stocks that suffered significant negative effects from the coronavirus fear and post-event return drift, they would have gained profits ranging from 2.14% to 13.81%. Robustness tests based on longer event windows confirm the main results. Additionally, we find evidence of reversals in stock returns mostly following the first stimulus payment in Australia. However, large firms and the information technology sector were the first to experience a reversal in returns a few days following the announcement of the second stimulus package and the commencement of lockdown but before the first stimulus payment was made.

Disrupting board appointments: Australia's governance guidelines and gender capital

PurposeThe purpose of this paper is to identify how board recruitment processes have been impacted by the Australian Securities Exchange (ASX) governance changes requiring listed boards to report annually on their gender diversity policy and profile.Design/methodology/approachEmploying a social constructivist approach, the research analyses interviews conducted with matched samples of board directors and stakeholders in 2010 and 2017 about board recruitment in ASX50 companies.FindingsThe introduction of ASX guidelines requiring gender reporting disrupted traditional board appointment processes. Women's gender capital gained currency, adding an additional dimension to the high levels of human and social capital seen as desirable for board appointments. The politics of women's presence is bringing about changes to the discourse and practice about who should/can be a director. The authors identify highly strategic ways in which women's gender capital has been used to agitate for more women to be appointed to boards.Research limitations/implicationsWhile sample sizes are small, data within the themes cohered meaningfully across the time periods, making visible how women's presence in the board room has been reframed. Future research could consider what this may mean for board dynamics and how enduring are these changes.Practical implicationsThis study highlights the forms that human and social capital take in board appointments, which can be instructive for potential directors, and how these intersect with gender capital. The insights from the study are relevant to board recruitment committees seeking to reflect their commitment to a more gender equitable environment.Originality/valueThere has been a recalibration of men's and women's gender capital in board appointments, and there is now a currency in femaleness disrupting the historical privilege afforded “maleness”.

The impact of IFRS complexity on analyst forecast properties: The moderating role of high quality audit

AbstractThis paper examines the impact of International Financial Reporting Standards (hereafter IFRS) complexity on analyst forecast properties including forecast errors, forecast dispersion and forecast revision. Because high‐quality audit is likely to moderate the effect of complexity on analyst forecast properties, Industry Specialization (ISP) as a proxy for high quality audit is introduced as a moderating variable in this paper. The complexity of individual IFRS standards is measured based on IFRS reconciliation statements capturing the adjustments on accounts affected by the changes in accounting standards. We analyze 322 companies listed on the Australian Securities Exchange (ASX). Our results suggest that all IFRS standards are not equally complex. A few standards are relatively more complex. These standards have a positive effect on analyst forecast errors, forecast dispersion and forecast revision. In addition, we find that high quality audit (proxied by city‐level industry specialist auditors) can mitigate the adverse impact of IFRS complexity on analyst forecast errors but not on forecast dispersion and revision. More interestingly, the mitigating effect of high quality audit is restricted to only a group of companies exposed to a higher level of aggregate IFRS complexity. The findings of our study contribute to the IFRS literature by identifying the most complex accounting standards. Secondly, this study provides an ex‐ante experiment in IFRS adoption, which can be used by adopting countries to understand the impact of IFRS on the analyst forecasts. Finally, our study helps regulators to understand the effects of the complexity of accounting standards on users of financial statements.

Do stakeholders’ demands matter in environmental disclosure practices? Evidence from Australia

Previous studies on the relationship between environmental performance and environmental disclosure have found mixed results. This exploratory qualitative study investigates the possible reasons for the environmental disclosures of nine companies listed in the top 200 Australian Securities Exchange (ASX) companies. This study reveals that the companies were more likely to disclose environmental information if their stakeholders, particularly from the financial markets (investors) and/or customers, demanded that they do so. Disclosure can then be seen as a function of stakeholders’ demand or pressure, and in the absence of such a demand, firms may disclose little or remain silent. The good and poor environmental performers in this study, as rated by the Corporate Monitor ratings of environmental performance, tend to exhibit the same disclosure behaviour, which may indicate that the environmental disclosure may not necessarily reflect the actual performance.

Australia’s Publicly Listed Manufacturing Companies – Analysing the connection between Return on Equity (ROE) and Altman Z-Scores

Australia’s economy is considered to be a highly developed market economy and a reasonably large economy globally. This article seeks to analyse the connection between the business, or financial health, as measured by the Altman Z-Score, and corporate performance, as measured by the Return on Equity (ROE), of listed manufacturing companies in this market (the ASX or Australian Securities Exchange). A linear regression has been performed between these variables to ascertain the extent and direction of their relationships. The trends of Z-Scores over a five-year period have also been examined. The study covers the period from 2013 to 2017 (inclusive) and yields a statistically positive correlation between ROE and the Z-Score for the market. Australia registered moderate-to-strong mean and median Z-Scores. These findings further support the strong economic position of this market as a business giant.

Corporate Social Performance and Use of Debt: an Examination of Australian Companies

This study examines whether the corporate social performance (CSP) activities of firms influence the structure of debt in the Australian context. Long-term debt is often associated with higher monitoring by lenders, which suggests that firms may benefit from using long-term debt strategically. Short-term debt arises from regular business dealings with a number of primary stakeholders such as customers, suppliers, employees and lenders. We propose in this study that businesses that are committed to improving CSP outcomes may reduce use of short-term debt contributing to building sustainable long-term relationships with the primary stakeholders. We therefore investigate whether firms that prioritise CSP favour long-term debt or short-term debt. Using a sample of Australian Securities Exchange (ASX) listed firms, this study finds that the level of CSP is not associated with long-term debt use, but there is a significant negative association between CSP and the short-term debt usage. This finding suggests that firms with stakeholder-friendly policies reduce their use of short-term debt rather than long-term debt. The reduced use of short-term debt helps resolve possible conflicts between the primary stakeholders and a firm, thus this study presents evidence supporting stakeholder theory and conflict-resolution hypothesis.

Board diversity: female director participation and corporate innovation

Purpose This study aims to examine the impact of board female participation on Australian firms’ innovation. Design/methodology/approach Data are from the 500 largest Australian Securities Exchange (ASX)-listed companies for 2004–2015. Measures of innovation concern input (research and development expenditure and intangible assets) and output (patents registered) indicators. Findings A positive and significant association exists between female director participation and firm innovation activity. This association exists across industry classifications independent of technological importance and is particularly driven by materials and health-care sectors. Findings support calls for more board diversity in line with board female membership positively influencing innovative investment and development activities. Practical implications The economic efficacy of the latest revisions to the ASX Corporate Governance Council principles and recommendations (“ASX CGC revisions”) is supported. Diverse boards are a strong source of innovation. Regulators and corporations can use the findings to establish principles and practices that promote female board diversity. Originality/value This study is the first to examine the link between board diversity and corporate innovation in Australia where there is under-representation of women on corporate boards and in key management positions. Also lacking are formal legislative or governance policy mandates on board gender diversity. Beyond confirming a positive association between board diversity and levels of corporate innovation, this paper provides new findings that this relationship is driven by women who are non-executive (independent) directors, independent of the underlying technology intensity of firms and moderated by the nature of firm-level profitability and growth opportunities.

COVID-19 outbreak and sectoral performance of the Australian stock market: An event study analysis.

The outbreak of COVID‐19 has weakened the economy of Australia and its capital market since early 2020. The overall stock market has declined. However, some sectors become highly vulnerable while others continue to perform well even in the crisis period. Given this new reality, we seek to investigate the initial volatility and the sectoral return. In this study, we analyse data for eight sectors such as, transportation, pharmaceuticals, healthcare, energy, food, real estate, telecommunications and technology of the Australian stock market. In doing so, we obtain data from Australian Securities Exchange (ASX) and analysed them based on ‘Event Study’ method. Here, we use the 10‐days window for the event of official announcement of the COVID‐19 outbreak in Australia on 27 February 2020. The findings of the study show that on the day of announcement, the indices for food, pharmaceuticals and healthcare exhibit impressive positive returns. Following the announcement, the telecommunications, pharmaceuticals and healthcare sectors exhibit good performance, while poor performance is demonstrated by the transportation industry. The findings are vital for investors, market participants, companies, private and public policymakers and governments to develop recovery action plans for vulnerable sectors and enable investors to regain their confidence to make better investment decisions.

Analysis Of Conservatism Accounting And Conflict Bondholders-Shareholder Against Quality Of Profit In Indonesia And Australia And Its Comparison

This study aims to determine the effect of accounting conservatism and the conflict of bondholder-shareholders on the companies' earnings quality that list on the Indonesian Stock Exchange (IDX) and the Australian Securities Exchange (ASX). Besides, this study also aims to determine differences in Indonesia's earning quality level and Australia financial statements. The research method used is a quantitative statistical analysis using the classic assumption test, multiple regression analysis, T-test, and F test by a significance level of 5%. This study's independent variable (X) is accounting conservatism and shareholder bondholder conflict with the dependent variable (Y), earnings quality. The result of the analysis that has been done proves that partially and simultaneously, accounting conservatism has a significant effect on the earning quality in Indonesian and Australian companies.
 Meanwhile, in the study of the bondholder-shareholder conflict on earning quality shows that it does not affect achieving quality. But, simultaneously, it involves reaching quality in Indonesian and Australian companies. Meanwhile, based on descriptive statistical analysis, earnings quality in Australia is better than in Indonesia.

Multiple duration analyses of dynamic limit order placement strategies and aggressiveness in a low-latency market environment

This study examines dynamic order placement strategies in a low-latency environment together with limit orders' aggressiveness by a new approach which utilises survival analysis with a multiple-spell duration model. Two samples are considered, including the period immediately followed Australian Securities Exchange (ASX)’s migration to Integrated Trading System (ITS) and the period subsequent to the launch of ASX Trade. We find the evidence supporting both the ‘cost of immediacy hypothesis' and the ‘chasing hypothesis' as in Hasbrouck and Saar (2009). Furthermore, several distinctions in the results are found between the samples of ITS period and ASX Trade period as well as between the samples of small-cap stocks and large-cap stocks. The findings of this study are beneficial not only for high-frequency traders in forming dynamic order placement strategies in a low-latency stock market environment, but also for market regulators in helping their attempt to improve regulations for stock exchanges.

Capital Raising by Companies During the COVID-19 Crisis: An Analysis of Recent ASX Reforms

The effects of the COVID-19 crisis have driven many listed Australian companies to raise emergency capital. These share issues have been facilitated by a relaxation of the rules applying to capital raising by the Australian Securities Exchange, a move supported by the Australian Securities and Investments Commission. The reforms to the rules draw on the experience of the financial crisis in 2008 - 2009. They are designed to assist companies adversely affected by the COVID-19 crisis to raise capital to survive the crisis. The nature of the reforms and the capital raisings to which they relate have been the subject of competing concerns. In particular, the enhanced disclosure requirements that have accompanied the relaxation of the capital raising rules have been criticised by some as unwarranted and by others as insufficient. In this research note, the authors provide information on the number of capital raisings since the beginning of COVID-19 and evaluate the competing arguments regarding the recent capital raising reforms.

Board Gender Diversity and Corporate Financial Performance: Is there an Economic Case in Australia?

The main objective of this study is to understand the relationship between board gender diversity and financial performance. Australia offers a unique context as board quotas are not mandated and the governance code is principle-based rather than rule-based. Corporate firms in Australia are subject to corporate governance recommendations issued by the Australian Securities Exchange (ASX) in 2003. Additionally, ASX diversity initiatives introduced in 2010 require listed firms to incorporate additional recommendations from 2011. The Australian economy is characterised by large resources and financial sectors with each of these two dominated by a few large businesses. The gender pay gap is still considerable in Australia. Given these contextual considerations, an examination of the association between gender diversity of corporate boards of directors and corporate financial performance in Australia is likely to offer additional insights into the debate on the importance of gender diversity in the corporate sector. The sample of firms is derived from the constituents of S&P ASX 300 Index for the period from 2004 to 2016. At an aggregate level, empirical findings provide evidence that board gender diversity is not positively associated with corporate financial performance. However, a closer examination of the study period before and after gender diversity initiatives by ASX and consideration of sectoral differences shows that the association between gender diversity and financial performance varies over time and across sectors. In particular, board gender diversity has a significant positive association with financial performance of Australian firms in the financial and services sectors specifically after the diversity initiatives were introduced by ASX in 2010. In the resources sector, there is no evidence that gender diversity has a positive association with financial performance. This study therefore offers some support for an economic case for gender diversity initiatives particularly in the financial and services sectors.

Examination of information release on return volatility: A market and sectoral analysis

This paper examines the role of information release in explaining the return volatility of the Australian equity market. The study applies proxies of greater accuracy to examine the effect of public and private information on return volatility. Analyst price targets (PTR) and Morningstar stock star ratings (MSR) were used as private information proxies while Australian Securities Exchange (ASX) announcements were used as the public information proxy. Daily data was collected for ASX 200 listed firms for the period 2013 to 2017. Analysis was conducted at both the aggregate market level and the sectoral level. Findings suggest that PTR have the largest effect on return volatility at both levels, with varied effects within each sector. This indicates that investors rely heavily on this information when undertaking investment decisions. In contrast, MSR had a negligible effect, likely due to the lower degree of informational content. Public information had a minor effect on return volatility at both the aggregate market and sectoral levels. These mixed results show that information flow varies depending on the information type (i.e. public or private) with each sector interpreting the same type of information differently. The research findings provide a valuable guide to investors regarding the appropriate information to generate excess returns as well as to hedge against future losses.

The Efficiency of Stock Exchange Self-Regulation: Evidence from Stock Market Liquidity and Transparency

This study examines whether and how stock exchange self-regulation affects stock market liquidity and corporate transparency. Using a large sample of firms from 46 stock exchanges from 2001 to 2015, we find significant and robust evidence that firms listed in self-regulated stock exchange are associated with fewer zero-return days, lower daily stock price variation, higher stock trading volume, smaller analyst forecast errors, lower discretionary accruals and less earnings management. These findings are more pronounced when the stock exchange has a strong self-regulation model rather than a limited self-regulation model. Also, our results are robust in different-in-difference tests based on the Australian Securities Exchange’s change from strong self-regulation model to a government regulation model. Further, when a firm from a country with a government-regulated stock exchange is cross-listed in a self-regulated stock exchange, the firm has higher liquidity and transparency than the matched firms. In addition, we find that self-regulated exchanges set more detailed insider trading and disclosure rules and are more transparent with their rules and rule enforcement. Overall, our study suggests that stock exchange self-regulation improves the efficiency of stock market regulation.