Australian Securities Exchange Research Articles

The adoption of new technology by listed companies: the case of Twitter

ABSTRACTThis study investigates the adoption of Twitter by Australian listed companies for disseminating marketing information (including corporate promotion) and for directly interacting with consumers. Based on a sample of the Top 200 Australian Securities Exchange (ASX) listed companies, we find that companies with larger market capital are more likely to adopt Twitter for static advertising, a one-way communication approach, and direct interaction with consumers, a two-way communication approach. Companies with smaller market capital that adopt Twitter for marketing communication appear to disseminate more corporate promotion information, a static advertising approach. Overall, our results indicate that the level of a company's access to resources can influence their adoption of a new technology and the manner in which it is used. This study calls for further clarification of regulation regarding marketing communication on social media and experience sharing between industry practitioners.

Global financial crisis, ownership structure and firm financial performance

PurposeThis paper aims to investigate the financial performance of listed firms on the Australian Securities Exchange (ASX) over two sample periods (1998-2007 and 2008-2010) before and during the global financial crisis periods.Design/methodology/approachThe generalized method of moments (GMM) has been used to examine the relationship between family ownership and a firm’s performance during the financial crisis period, reflecting on the higher risk exposure associated with capital markets.FindingsApplying firm-based measures of financial performance (ROA and ROE), the empirical results show that family firms with ownership concentration performed better than nonfamily firms with dispersed ownership structures. The results also show that ownership concentration has a positive and significant impact on family- and nonfamily-owned firms during the crisis period. In addition, financial leverage had a positive and significant effect on the performance of Australian family-owned firms during both periods. However, if the impact of the crisis by sector is taking into account, the financial leverage only becomes significant for the nonmining family firms during the pre-crisis period. The results also reveal that family businesses are risk-averse business organizations. These findings are consistent with the underlying economic theories.Originality/valueThis paper contributes to the debate whether the ownership structure affects firms’ financial performance such as ROE and ROA during the global financial crisis by investigating family and nonfamily firms listed on the Australian capital market. It also identifies several influential drivers of financial performance in both normal and crisis periods. Given the paucity of studies in the area of family business, the empirical results of this research provide useful information for researchers, practitioners and investors, who are operating in capital markets for family and nonfamily businesses.

What determines the efficiency of Australian mining companies?

We examine the firm‐specific determinants of technical efficiency in Australian mining companies using data envelopment analysis (DEA). To do so, we employ panel data sourced from individual mining companies listed on the Australian Securities Exchange (ASX) over the period 2010–2014. To ensure valid statistical inference in the presence of serial correlation between DEA efficiency scores, we apply Simar and Wilson's two‐stage bootstrap method. We find that ownership concentration, firm size, firm age, product portfolio, product diversification and growth status significantly contribute to efficiency gains. However, other firm‐specific factors, such as capacity utilisation, financial risk and overseas operations appear to have limited impact on the technical efficiency of mining firms.

Portfolio Size and Profitability of Moving Average Timing Strategy

Using popular technical trading rule of moving averages, this study documents the profitability of technical analysis for equal weighted random portfolios from Australian Securities Exchange (ASX) and New Zealand Exchange (NZX) equity markets. The findings confirm prior evidence on the profitability of technical analysis for portfolio trading in relatively illiquid financial markets that are part of small open economies. This study contributes to the technical analysis literature regarding the number of stocks in a portfolio (hereafter “portfolio size”) that a trader must hold to outperform a passive benchmark strategy. Precisely, the findings suggest that an investor can consistently outperform buy and hold strategy return by applying MA timing strategy to a portfolio that contains 80 or more random stocks. In addition, the study identifies market volatility and short-term market trend as major determinants of moving average strategy’s success.

Changing Boundaries: Women, Boards and Gender Capital in Australia

Women’s representation on corporate boards has garnered significant attention in recent years. In Australia, the Australian Securities Exchange (ASX) introduced governance changes in January 2011 r...

Diversity ASX corporate governance recommendations: a step towards change?

PurposeThe business case argument was used to underpin the inclusion of diversity disclosures within the Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations (2010). By adding a requirement for diversity disclosure, an increase in focus on diversity would be expected because of a heightened level of accountability. Whether this change in the Recommendations affected any change in the boardroom is questionable though. The purpose of this paper is to explore the effectiveness of these disclosure requirements.Design/methodology/approachThe authors draw on data obtained from a random sample of 120 ASX-listed company annual reports across two time periods: 2009 and 2012 (before and after the change in the Recommendations).FindingsAlthough findings indicate that there has been some change, especially in the more visible companies (ASX200), many of the changes appear to be largely superficial with a continued focus on the business case perspective.Social implicationsWhile the disclosure recommendations have the potential to be a driver in addressing gender inequity, the findings of this paper indicate that without deep change at the organisational level, requiring listed companies to disclose on gender diversity may have little impact, with the focus remaining on the business case and business as normal.Originality/valueThis paper contributes to the literature on gender diversity in the boardroom and the effect of disclosure. The empirical findings contribute to an understanding of the diversity Recommendations within the ASX Corporate Governance Principles and Recommendations, but in doing so, it calls for deeper organisational cultural change if real change is to take effect.

The Impact of the GFC on Sectoral Market Efficiency: Non‐linear Testing for the Case of Australia

This paper investigates the efficiency of the Australian stock market during the period of volatility and disruption associated with the Global Financial Crises (GFC). Furthermore, the investigation seeks to observe any divergence in market efficiency between industry sectors that demonstrate differing economic performance across the period. Spanning a time period of 2000–2015, the data are split into three periods of distinct economic conditions: a pre‐crisis period of relatively high growth, the GFC period of disruption and contraction, and a post‐GFC period of relatively low growth. Five sector indices listed on the Australian Securities Exchange are analysed to search for evidence of market efficiency (Real Estate, Consumer Discretionary, Financials, Materials, and Metals and Mining). A range of non‐linear tests are applied in order to systematically investigate the structure of the market in each sector. The results highlight the cointegrated nature of non‐linearity across related sectors, and also demonstrate that different industries within the same economy can reveal highly diverse patterns of non‐linearity and market efficiency in response to financial crisis.

Boardroom gender diversity and corporate sustainability practices: Evidence from Australian Securities Exchange listed firms

Recent regulatory changes in Australia require listed companies to implement policies for increasing board diversity and corporate sustainability practices and to report thereon. In this study the impact of boardroom gender diversity on corporate sustainability practices is investigated, by applying a well-developed dynamic panel generalized method of moments (GMM) estimator to control for endogeneity, on a sample of all Australian Securities Exchange (ASX) listed firms over the period of 2010–2014. The study findings reveal a significant positive relationship between women’s representation on boards and corporate sustainability practices. The findings remained robust when two alternative proxies for gender diversity (Blau Index, women dummy) were employed. The findings highlight that corporate sustainability practices with the presence of female directors on board remarkably increased between 2010, when ASX amended principles came into effect, and 2014. These findings are important for two aspects. The first is for firms’ management, the regulators and for policy implications in promoting gender diversity and corporate sustainability practices. Secondly the policy debate is informed by providing empirical evidence supporting a board diversity case for corporate sustainability performance.

Venture capital‐backed and commitments test entity initial public offerings on the ASX

AbstractThis paper examines initial returns to venture capital (VC) backed and non‐VC‐backed IPO companies on the Australian Securities Exchange (ASX). We find support for the theoretical predictions of Rossetto (2008), by providing empirical evidence that VC‐backed CTE IPOs exhibit greater wealth losses to pre‐IPO investors compared to non‐VC‐backed CTE IPOs during hot issue markets. We also find that greater retained ownership increases IPO underpricing. In the subsample of IPOs with below the median level of retained ownership IPOs, VC‐backed CTE IPOs and VC‐backed, non‐CTE IPOs have significantly higher levels of underpricing and wealth loss compared to non‐VC‐backed, non‐CTE IPOs.

An Empirical Study of Financial Integration between Stock Market of India and Australia

Growth of a country is dependent upon growth of industries which, in turn, depends upon capital market conditions because this market is going to give an element which is most important for the success and failure of every industry i.e., funds. The Australian Securities Exchange market is the largest exchange in the world with market capitalisation of more than A$ 1.5 trillion. It is the finest and most advanced and automated exchange of the world. India is also having sophisticated stock exchange which is National Stock Exchange. The present paper made an attempt to investigate financial integration between NSE and ASX stock market taking daily closing index of ASX and NSE. The descriptive statistics showed NSE market provides slightly higher returns than ASX market. The results of Granger causality show that ASX does not Ganger cause return at NSE and NSE also does not Granger cause return at ASX. The Johansen Co-integration test also speaks about no co-integration between them. Therefore, during the study we did not find a strong financial integration between both the nations’ stock market.

Asset pricing and downside risk in the Australian share market

ABSTRACTAs downside risk has been identified as a separate risk exposure to investors, we investigate whether downside beta and co-skewness exposure impact on the return to investors in Australian equities. Although considered as a developed market, the Australian Securities Exchange merits separate investigation, as it is small and concentrated on some sectors, when compared with the major developed markets. As realized returns are a proxy for expected returns, we separately examine conditional returns in upturn and downturn periods. We find that both downside risks are separately priced by investors, and that our results are unaffected by the inclusion of a range of company characteristics. We subsequently confirm that returns to each downside risk are not related. In robustness tests, we conclude that the return to downside risk cannot be explained by a size, a value, or a momentum premium. Although it also has explanatory power, the inclusion of a leverage factor also does not reduce the explanatory power of downside risk.

Sgx Bids for Asx

In October 2010, the recently appointed CEO of the Singapore Exchange (SGX) wanted the SGX to grow faster than organic growth alone would allow. The most logical acquisition target was the Australian Securities Exchange (ASX). Executives from the SGX and the ASX announced an agreement to merge. The two exchanges would remain separate legal entities for regulatory purposes but both would be owned by ASX‐SGX Limited, a new holding company that the deal would establish. But why did the merger fail? This left executives at the SGX and other foreign securities exchanges pondering whether the conditions the Australian Treasurer specified for a merger could ever be met and, if so, would a foreign securities exchange really be allowed to acquire the ASX? Excerpt UVA-F-1756 Rev. Jul. 21, 2016 SGX Bids for ASX It was October 2010, and the recently appointed CEO of the Singapore Exchange (SGX) wanted the SGX to grow faster than organic growth alone would allow. Although Singapore was an important world financial capital and a very prosperous city‐state, its small population of 5 million limited potential growth from the domestic economy alone. At the same time, changes in the ownership structure of exchanges, coupled with a shift to electronic trading and increased competition from new trading venues, had sparked a wave of exchange mergers and attempted mergers around the world since the turn of the century. Acquiring another exchange could achieve the SGX's desired growth and realize significant cost and revenue synergies while increasing the SGX's relative importance in a consolidating industry. The problem that the SGX faced was that there were only a few potential acquisition targets in the Asia‐Pacific region, as most countries in the region would not allow a domestic securities exchange to be acquired by a foreign one in a cross‐border merger. . . .

Do brokers' recommendation changes generate brokerage? Evidence from a central limit order market

AbstractWe examine the short‐term response to recommendation changes on the Australian Securities Exchange, a central limit order market. In both central limit order markets and dealer‐driven markets, clients may reward the recommending broker with increased trade volumes. But a central limit order market does not have mandatory market makers and hence provides greater opportunity to free ride. We find evidence supporting the hypothesis that recommending brokers are rewarded with higher trade volumes and brokerage commission. Consistent with the tipping hypothesis, these rewards are concentrated in the period shortly before the release. There is no evidence of free riding.

Integrating Environmental, Social and Governance (ESG) Disclosure for a Sustainable Development: An Australian Study

AbstractAddressing environmental, social and governance (ESG) issues has become a critical part of business strategy. This article explores the extent of ESG reporting of metal and mining sector companies listed in the Australian Securities Exchange to determine the nature of ESG indicators in use in the sector. The current study argues that stakeholder engagement is the key to enhance company environmental policy and sustainable development. According to the results of this study, ESG reporting motives are highly influenced by reporting regulations. Given the diversity in reporting of ESG, comparability of ESG strategic performance is problematic. This study contributes towards developing an ESG disclosure index, which companies could use as a legitimacy tool that external stakeholders could use to reliably measure and compare the ESG performance of companies. It also reveals there is an increased demand for more empirical research on integration of sustainability into strategic planning process. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment

The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange

This paper considers the accuracy (or otherwise) of cost of equity estimates provided by a range of Australian asset pricing models on industry returns. The results suggest that a simple, constant-benchmark approach (fixed excess return of five percent per annum) provides the best forecast for the cost of equity capital for the various industry segments of the Australian Securities Exchange examined across the observation window. Our results from Australia corroborate U.S. findings regarding the disconnect between asset pricing models that provide the best ex-post explanation of asset returns and models that produce superior ex-ante predictions of the cost of capital.

A finer-grained approach to assessing the “quality” (“quantity” and “richness”) of risk management disclosures

PurposeThis paper aims to examine the “quality” of narrative risk management disclosures (RMD) from a “quantity” and “richness” (width and depth) perspective, utilising a finer-grained approach. Evidence is then provided on the relationships between RMD quality and the corporate determinants driving that quality.Design/methodology/approachWithin a multidimensional quality disclosure framework, annual report narrative RMD from the top 100 Australian Securities Exchange (ASX) listed companies precisely “matched” for the 2010 and 2012 years were examined using semantic content analysis. The relationship between the dimensions and sub-dimensions of RMD “quantity” and “richness”, and various corporate characteristics were explored using ordinary least squares (OLS) regression analysis.FindingsThe results indicate that RMD are considerably lacking in quality, from the “quantity”, “width” and particularly the “depth” dimension and sub-dimensions for both years. Many companies provide “boiler plate” RMD over consecutive years and many do not comply with the intent of the ASX Corporate Governance Principles and Recommendations under the “if not, why not” regime (ASX CGC, 2010). Company size and cross-listing were found to be the primary determinants of higher quality RMD and, to a lesser extent, firm risk. Some evidence was found that “quality” RMD were less likely where companies are more highly leveraged and when their shareholders are more concentrated.Research limitations/implicationsAlthough two coders independently coded the RMD and specific decision rules were followed, the subjectivity inherent in conducting semantic content analysis into the dimensions and sub-dimensions of the framework cannot be completely eliminated. However, by adopting a finer-grained approach, this study contributes to the global literature on the quality of RMD. Previous studies are extended by analysing and testing the individual dimensions and sub-dimensions of “quantity” and “richness” which provides new empirical evidence and a more comprehensive portrayal of RMD quality and a greater understanding why some companies are more likely to disclose higher quality RMD than others.Practical implicationsThese results provide useful and predominantly new empirical evidence on the quality of RMD for practitioners, regulators and researchers. As many companies are not complying with the “intent” of the “if not, why not” approach, these results support the argument for mandated narrative RMD regulations at an international level.Originality/valueThe multidimensional framework of RMD “quantity” and “richness” provides a basis for examining not only how much is disclosed, but what is disclosed and how. In adopting a finer-grained approach, this study analyses and tests the individual dimensions and sub-dimensions of the framework. This provides a deeper understanding of the overall quality of RMD and the determinants driving RMD quality for the sample companies.

Value-Creation Through Spin-Offs: Australian Evidence

We examine announcement effects and the long-run stock performance associated with spin-offs for companies listed on the Australian Securities Exchange (ASX). The 3-day announcement effect is a significantly positive 2.93%. Contrary to previous studies, we do not find any difference between ex post completed and non-completed spin-off announcements. The abnormal returns do not seem to be related to factors that were found significant in previous studies such as an increase in industrial or geographical focus, information asymmetry, and the amount of bank debt of the parent company. Australian spin-offs are associated with a positive long-run excess stock performance for up to 36 months after the spin-off. This effect is particularly strong for focus-increasing spin-offs.

The impact of latency sensitive trading on high frequency arbitrage opportunities

This study examines the duration, frequency and profitability of potential high frequency arbitrage strategies between the share price index futures contract and an exchange-traded fund (ETF) written on the S&P/ASX200 constituent securities traded on the Australian Securities Exchange (ASX). We find the frequency and profitability of potential arbitrage opportunities are greater during volatile and high turnover periods—other things equal. We examine the impact of increased competition in high frequency trading (HFT) by identifying the number of ‘co-location connections’ utilized in the ASX's minimum latency liquidity center. We document an increase in the frequency, duration and value (albeit small) of index arbitrage profit opportunities with increased HFT connections. Our results are robust to the inclusion of transaction costs. We conclude that increased HFT activity in markets increases trade execution risk associated with arbitrage (or legging risk) which in turn increases mispricing in markets.

Do Index Futures Cause Spot Market Volatility? An Investigation of the Australian Resources Index

This paper applies GARCH models to ascertain the impact of index futures trading on the volatility of the spot market. Specifically, the research aims to determine whether the introduction of index futures trading increases or decreases the level of volatility within the underlying spot market. In addition, the research verifies the sensitivity of price to information as well as the impact the leverage effect may have on the degree and structure of volatility. As Australia is a commodity driven economy, resources constitute one of the largest economic sectors. Following from this, the daily closing price of the ASX 200 Resources Index for the period 2010 to 2016 was therefore used in the analysis. Given that 14 October 2013 was when the Australian Securities Exchange launched the ASX 200 Resources Index futures, investigating the volatility prior to and after this date is also a focus of the paper. The results of the study suggest that the introduction of index futures did not substantially increase the level of volatility in the spot market but found that there is an increase in sensitivity to historical information; and that a negative leverage effect exists within the Resources Index. Since the Australian share market operates within a dynamic financial landscape, the study adopts a framework that seeks to provide behavioural and macroeconomic explanations for the findings, where appropriate.

Does Corporate Social Responsibility Reduce Information Asymmetry? New Empirical Evidence from Australia

In this article, we provide new empirical evidence of the association between corporate social responsibility (CSR) and information asymmetry (IA) within the Australian context. Utilising a novel firm-level dataset of Australian publicly listed firms from EIKON and Australian Securities Exchange, and spanning the period 2004-2014, we examine five key hypotheses based on stakeholder theory. We estimate the information asymmetry model using fixed effect estimator with robust standard errors. We find that CSR performance is negatively associated with information asymmetry. Moreover, we find that the influence of CSR on bid-ask spread is more pronounced for large-sized, strong market power and high debt-to-equity ratio firms. We also find that the negative association between CSR and information asymmetry decreases for firms with high level of equity risk. Overall, our results are robust to alternative measures of CSR and IA, model specification and accounting for endogeneity, thus supporting the stakeholder theory of the negative relationship between CSR and information asymmetry. The findings highlight yet the importance of CSR in firm performance and the need to implement regulatory frameworks that mitigate the negative impact of information asymmetry on investor decision making.