Pre Global Financial Crisis Research Articles

The relevance to firm valuation of research and development expenditure in the Australian health-care industry

The health-care industry requires large expenditure on research and development (R&D), with many projects undergoing long development cycles, usually with uncertain outcomes. Extant research has mainly concentrated on the health-care industry in the United States, where R&D costs are expensed as incurred. Previous Australian research has found mixed results in relation to R&D expenditure and changes in share price. This study investigates whether R&D expenditure reported in the health-care industry since the introduction of IAS 38 is significantly associated with share price. Results of the study show that expensed R&D is value-relevant, while a comparison of the pre and post-IAS 38 periods (including pre-global financial crisis (GFC) and GFC periods) shows a statistically significant improvement in the explanatory power of the regression model post-IAS 38, suggesting that R&D expenditure reported under the new standard IAS 38 is more useful for decision-making by investors compared with reporting under AASB 1011.

The determinants of equity agency conflicts between managers and shareholders: Evidence from Australia

We analyse the determinants of equity agency costs for the top 500 Australian listed firms. Data are collected over four one-year periods (2004, 2005, 2010 and 2011) and analysed using both pooled OLS regression and two stage least squares regression within a random effects panel data model. Analysis covers the full four-year period, the pre global financial crisis (GFC) sub-period (2004 and 2005) and the post GFC sub-period (2010 and 2011). Shareholding, board characteristics and debt financing are found to have an impact on agency costs though there is evidence of some change in these relations with the onset of the GFC, particularly with respect to the impact of insider ownership and board size.

An assessment of development funding for new housing post GFC in Queensland, Australia

Purpose – The purpose of this paper is to identify changes in bank lending criteria due to the global financial crisis (GFC) and to explore the associated impacts on new housing supply in Queensland, Australia.Design/methodology/approach – This research involves a survey of each of Australia's big four banks, as well as two prominent arrangers of development finance. Data on key lending criteria were collected: pre GFC, during the GFC, and GFC recovery stage.Findings – The GFC has resulted in a retraction of funds available for residential development. The few institutions lending are filtering out only the best credit risks by way of constrictive loan covenants including: low loan to value ratios, high cash equity requirements, regional “no go” zones, and demonstrated borrower track record. The ability of developers to proceed with new housing developments is being constrained by their inability to obtain sufficient finance.Research limitations/implications – This research uses survey data, together with...

A Study on Industry Superannuation in Australia: Risk Disclosure and pre-Global Financial Crisis

The purpose of this paper is to examine the extent to which the statutory accounts of industry superannuation funds reported risk in 2007, required by the new Australian accounting standard AASB 7 -Financial Instruments: Disclosures. This study tests our selected methodologies to measure risk disclosure. The sample was randomly selected on the list of industry superannuation funds published by APRA. In 2007, there were 74 industry superannuation funds. However, the detailed data published showed only the largest 58 industry super funds. Our sample was 44 industry super funds and the response rate was 59 per cent. The findings indicated the trend of low levels of risk disclosure for 2007, the year before the onset of the Global Financial Crisis. The study is limited as the data was collected using email requests for published financial data. This paper should also be of interest to the professional community as it investigates primary financial data that is ‘tightly held’ by superannuation funds, that is, data that is not readily available on websites. This research will contribute toward determining if AASB 7 has improved the quality of financial data available to fund members and other interested external parties.

Co‐movements and Correlations Across Asian Securitized Real Estate and Stock Markets

We find conditional real estate‐stock correlations at the local, regional and global levels are time varying and asymmetric in some cases for our sample of eight Asian securitized real estate markets over 1995–2009. Real estate–global stock correlations co‐move significantly and positively with real estate–regional stock correlations and real estate–local stock correlations. They are also influenced significantly by relative (real estate/stock) volatilities and their lags at three integration levels. Furthermore, real estate and stock volatilities, covariances and correlations increased from the preglobal financial crisis period to the crisis period. However, real estate and stock volatility are more important than correlation in causing the changes in covariance during both the precrisis and crisis periods. Finally, exchange rate volatility appears to have played a relatively less important role in these cross real estate–stock correlations.

An Instrument Variable Model of the Impact of Financing on Performance of Small Businesses in Australia Pre-Global Financial Crisis — Firm Level Empirical Analysis Using ABS Business Longitudinal Data 2007

Firm level empirical research on the impact of financing decisions on small business performance is scarce in the Australian context. This study adopts an instrument variable (IV) approach to analysis the impact of financing decisions, in particular, equity or debt obtained, on the performance of small businesses using the panel data from ABS Business Longitudinal Database (BLD) 2004-05, 2005-06 and 2006-07. Performance variables, i.e. sales and expenditure, are used as dependent variables. Equity and debt obtained are used as independent variables (or known as treatments). Instrument variables include size of the business, age of the business, number of locations, industry division etc. The results from IV modelling outperformed that obtained from OLS. Findings include: (1) financing have significantly positive impacts on the performance of small businesses in Australia; (2) equity and debt financing are used as alternatives; comparatively, equity financing is preferred; (3) capital purchase are largely funded by the debt financing, while noncapital purchases and salary expense are funded by the equity financing; (4) equity financing is more often used for firms with increasing capital purchases and declining noncapital purchases, while debt financing is used by firms with the opposite trends. The paper concludes with a discussion of the limitations of this research and future research directions.

Determinants and Market Impact of Seasoned Equity Offerings: The Case of A-REITs

The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000-2008 and stock market reaction to the offerings. The findings review that highly leveraged A-REITs with variable earnings are less likely to issue seasoned equity offerings. Inconsistent results for structure and type of properties held by the A-REIT do not allow for inference to be drawn. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Furthermore, market reaction differences to announcements of SEOs for the pre-global financial crisis (GFC) (2000-2006) and GFC eras (2007-2008) are noted with GFC era shareholders incurring larger abnormal return losses at 1.13% in comparison to the pre-GFC era shareholder loss of 0.34% on the SEO announcement day. Cross-sectional regressions show that the issued amount, leverage and profitability are significant factors affecting abnormal returns. Growth opportunities, tangibility, operating risk, size of A-REIT and other variables capturing A-REIT structure and property types held do not have an impact on abnormal returns.

An Empirical Analysis of Foreign Institutional Investment and Stock Market Returns in India

Augmented Dickey Fuller and Phillips-Perron tests were employed to examine the stationarity of both net foreign institutional investment and NSE market return series. Besides, Instantaneous Granger Causality test was employed to examine the contemporaneous relationship between net foreign institutional investment flows and equity market returns in India for the pre-global financial crisis and during a crisis period. By and large, our analysis reveals that there is an evidence of negative feedback trading hypothesis and positive feedback trading hypothesis by foreign investors before the global financial crisis period and during a crisis period respectively. This implies that foreign institutional investment acts as smoothening effect and destabilizing forces before and during the crisis period respectively. However, such positive feedback trading strategies from foreign institutional investors seem to be rational during the period of global financial crisis.

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