Related party transactions and finance company failure: New Zealand evidence

2018 ◽  
Vol 30 (2) ◽  
pp. 199-221 ◽  
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Jamal Roudaki
Keyword(s):  
Corporate Governance ◽  
New Zealand ◽  
Adverse Outcomes ◽  
Content Type ◽  
Related Party Transactions ◽  
Corporate Failure ◽  
Business News ◽  
Accounting Practice ◽  
External Connections ◽  
Interlocking Directors

Purpose This paper aims to examine the existence of related party transactions (RPTs) in failed financial companies in New Zealand when firms have interlocking directors on the board. We also examine the role of auditors in the review of RPTs. We anticipate that inter-company director relationships promote RPTs, while reputable large auditors (i.e. Big4) restrict the practice. Design/methodology/approach This study uses multivariate analysis to examine the determinants of RPTs. We use an unique, hand-collected database of New Zealand finance companies all of which collapsed during the years 2006-2011. Findings Using a sample of 65 firms (including 38 failed finance firms) and 219 firm-year observations, we found that almost half of the failed finance firms were engaged in RPTs. For the failed firms, those that were engaged in RPTs were mostly represented by interlocking directors and were audited by non-Big4 auditors, implying lower monitoring quality may facilitate RPTs. Using a sub-sample, we also found evidence that firms engaged in RPTs were later convicted of questionable accounting and disclosure practices. Practical implications This research is beneficial to regulators and audit professionals in understanding the potential for adverse outcomes associated with interlocking directors and undisclosed RPTs. While interlocking directors could enrich the external connections of a firm which might facilitate capital resourcing, this study suggests regulators might encourage firms to disclose RPTs when the firm has higher interlocked directors. Originality/value This study is the first to examine the association between RPTs and interlocking directors using a sample of failed finance companies. RPTs and lack of disclosure were widely attributed with being the determinants of corporate failure in the finance sector. However, failed finance firms remain widely under-researched because of a lack of available data. This study circumvent this limitation by using print media and business news portals to collate information on RPTs and interlocking directors. While prior research indicates that weak corporate governance leads to poor accounting practice, using the interlocking board as a proxy for weak corporate governance, this study is the first to substantiate the adverse effect of interlocking boards and undisclosed RPTs with corporate failure.

A “Big Bath” in China: accounting and corporate governance

2011 ◽  
Vol 1 (1) ◽  
pp. 1-6
Author(s):  
Mingchuan Ren
Keyword(s):  
Corporate Governance ◽  
Governance Structure ◽  
Subject Area ◽  
Performance Criteria ◽  
Corporate Governance Structure ◽  
Content Type ◽  
Accounting Practice ◽  
Creative Accounting ◽  
The Government ◽  
One Year

Subject area Accounting, corporate governance, business ethics. Study level/applicability MBA and EMBA. Case overview China has largely changed its accounting practice in line with international norms. But its corporate governance structure continued to be administratively driven. Many Chinese-listed companies, especially big ones, are transformed from state-owned enterprises, with the government as their largest shareholder. It is no exception to Company C. Then what is the common pattern of accounting behaviour in China? An insight could be drawn by analysing this case. Expected learning outcomes Highlight two issues in point, namely accounting issue and governance issue. Chinese companies are now allowed to choose their accounting policies, while their top decisions are subject to government policies. Identify Company C's creative accounting by discussing China's accounting reform. In this regard, China has been relatively robust in terms of dropping its own practice and adopting western one. Discuss the corporate governance issues unveiled. What are company's performance criteria? Are they clearly established and enforced? And what about government's decision to change CEO twice in less than one year? What are the impacts on CEO's behaviour? Supplementary materials Teaching note.

scholarly journals Corporate governance and corporate social responsibility synergies: evidence from New Zealand

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rashid Zaman ◽  
Muhammad Nadeem ◽  
Mariela Carvajal
Keyword(s):  
Corporate Governance ◽  
Corporate Social Responsibility ◽  
New Zealand ◽  
Social Responsibility ◽  
Stock Exchange ◽  
Business Practices ◽  
Content Type ◽  
Listed Firms ◽  
Responsible Business Practices ◽  
Corporate Social

Purpose This paper aims to provide exploratory evidence on corporate governance (CG) and corporate social responsibility (CSR) interfaces. Although there remains a voluminous literature on CG and CSR, very little effort has been put forward to explore the nature of this relationship. Design/methodology/approach Using interviews with Senior Executives of New Zealand Stock Exchange listed firms, this research assesses CG and CSR practices, identifies barriers for CG and CSR adoption and investigates the nature of the relationship between CG and CSR. Findings The results indicate a moderate level of CG and CSR practices, with a lack of resources and cost-time balance as common barriers for CG and CSR adoption. However, despite these barriers, we note that the majority of executives appreciate the increasing convergence between CG and CSR, and believe that a more robust CG framework will lead to more sustainable CSR practices. Originality/value These findings have important implications for managers and policymakers interested in understanding the CG-CSR nexus and promoting responsible business practices.

Does corporate governance matter in determining CEO compensation in the publicly listed companies in New Zealand? An empirical investigation

2015 ◽  
Vol 41 (3) ◽  
pp. 301-327 ◽  
Author(s):  
Krishna Reddy ◽  
Sazali Abidin ◽  
Linjuan You
Keyword(s):  
Corporate Governance ◽  
New Zealand ◽  
Ownership Structure ◽  
Ceo Compensation ◽  
Listed Companies ◽  
Board Structure ◽  
Company Performance ◽  
Content Type ◽  
The Usa ◽  
The Uk

Purpose – The purpose of this paper is to investigate the relationship between Chief Executive Officers’ (CEOs) compensation and corporate governance practices of publicly listed companies in New Zealand for the period 2005-2010. Design/methodology/approach – Prior literature argues that corporate governance systems and structures are heterogeneous, that is, corporate governance mechanisms that are important tend to be specific to a country and its institutional structures. The two corporate governance mechanisms most important for monitoring CEO compensation are ownership structure and board structure. The authors use a generalised least squares regression estimation technique to examine the effect ownership structure and board structure has on CEO compensation, and examine whether ownership structure, board structure, CEO and director compensation have an effect on company performance. Findings – After controlling for size, performance, industry and year effects, the authors report that internal features rather than external features of corporate governance practices influence CEO compensation. Companies that have their CEO on the board pay them more than those who do not sit on the board, suggesting CEOs on boards have power to influence board decisions and therefore boards become less effective in monitoring CEO compensation in the New Zealand context. Companies that pay their directors more tend to reward their CEOs more as well, thus supporting the managerial entrenchment hypothesis. Research limitations/implications – The results confirm the findings reported in prior studies that institutional investors are ineffective in monitoring managerial decisions and their focus is on decisions that benefit them on a short-term basis. Practical implications – The findings indicate that although the proportion of independent directors on boards does not significantly influence CEO compensation, it does indicate that outside directors are passive and are no more effective than insiders when it comes to the oversight and supervision of CEO compensation. Originality/value – Being a small and open financial market with many small- and medium-sized listed companies, New Zealand differs from large economies such as the UK and the USA in the sense that CEOs in New Zealand tend to be closely connected to each other. As such, the relationship between pay-performance for New Zealand is found to be different from those reported for the UK and the USA. In New Zealand, the proportion of institutional and/or block shareholders is positively associated with CEO compensation and negatively associated with company performance, suggesting that it is not an effective mechanism for monitoring CEO compensation.

Corporate governance structures and firm performance in large agriculture companies in New Zealand

2018 ◽  
Vol 18 (5) ◽  
pp. 987-1006 ◽  
Author(s):  
Jamal Roudaki
Keyword(s):  
Corporate Governance ◽  
New Zealand ◽  
Gender Diversity ◽  
Board Independence ◽  
Content Type ◽  
The Public ◽  
Board Compensation ◽  
Board Gender Diversity ◽  
High Level ◽  
Board Ownership

PurposeThis study aims to explore the role of corporate governance (CG) characteristics on the financial performance of large agricultural companies in New Zealand. External auditor remuneration and board characteristics, such as board ownership, board compensation, board independence and board gender diversity, are addressed in the context of New Zealand’s agricultural companies by applying agency theory.Design/methodology/approachThis paper uses a balanced panel data generalised least square regression analysis on 80 firm-years of observations over the period from 2012 to 2015.FindingsEmpirical analysis revealed that external auditors’ remuneration and board characteristics, such as board compensation and board independence, except for board ownership and board gender diversity, held no association with the agricultural companies’ performance. While board ownership and board gender diversity were negatively, but significantly, associated with firm performance, these results were pronounced in the listed agricultural companies rather than in the non-listed companies.Research limitations/implicationsThis study encountered limitations commonly associated with the majority of industry-specific studies, i.e. small sample size and lack of published financial information from databases. Therefore, for generalisation, these limitations were considered relevant.Practical implicationsThe results of this research project are beneficial for authorities and agricultural company directors in implementing CG principles and guidelines to empower such companies in international competition. Encouraging agricultural companies to maintain a high level of transparency in financial reporting is of central interest for the government’s economic development, and stock market investors achieve a high level of transparency in non-financial disclosures, the chief objective of this study. Finally, the results of this paper may encourage auditors to scrutinise CG disclosures by agricultural companies in more detail, looking for undisclosed information.Social implicationsThe results of this paper may encourage managerial transparency by providing appropriate disclosures for the public benefit. Investors may benefit from the disclosure provided in their economic decision-making and the public may expand on the information disclosed in facilitating development through exports, expansion of foreign investments and the indigenous economy.Originality/valueThe findings contribute to the literature by providing novel and original insights into using a sample of listed and non-listed agricultural companies to extend the current understanding of the governance-performance nexus.

scholarly journals AccountAbility’s AA1000AP standard: a framework for integrating sustainability into organisations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Bilal Farooq ◽  
Rashid Zaman ◽  
Muhammad Nadeem
Keyword(s):  
Corporate Governance ◽  
New Zealand ◽  
Stakeholder Engagement ◽  
Best Practice ◽  
Corporate Sustainability ◽  
Sustainability Reporting ◽  
Structured Interviews ◽  
Senior Managers ◽  
Content Type ◽  
Sustainability Initiatives

Purpose This study aims to evaluate corporate sustainability integration by evaluating corporate practices against the sustainability principles of inclusivity, materiality, responsiveness and impact outlined in AccountAbility’s AA1000 Accountability Principles (AA1000AP) standard. Design/methodology/approach Data comprise 12 semi-structured interviews with senior managers of listed New Zealand companies. Findings are evaluated against AccountAbility’s principles of inclusivity, materiality, responsiveness and impact, which are based on a normative view of stakeholder theory. Findings In terms of inclusivity, stakeholder engagement is primarily monologic and is directed more towards traditional stakeholder groups. However, social media, which is gaining popularity, has the potential to facilitate greater dialogic stakeholder engagement. While most companies undertake a materiality assessment (with varying degrees of rigour) to support sustainability reporting, only some use it to drive planning and decision-making. Companies demonstrate responsiveness to stakeholder concerns through corporate governance and sustainability initiatives. Companies are monitoring and measuring their impact on stakeholders using sustainability key performance indicators (KPIs). However, measuring traditional metrics is easier than measuring areas such as the community. In rare instances, the executive’s remuneration is linked to these sustainability KPIs. Practical implications The study findings offer useful examples of the integration of sustainability into corporate processes and systems. Practitioners may find the insights useful in understanding how sustainability is currently being integrated into corporate practices by best practice New Zealand companies. Regulators may consider incorporating AA1000AP into their corporate governance guidelines. Finally, academics may find the study useful for teaching business and accounting courses and to guide the next generation of business managers. Originality/value First, the study brings together four streams of research on how sustainability reports are prepared (inclusivity, materiality, responsiveness and impact) in a single study. Second, the findings offer novel insights by evaluating corporate sustainability against the requirements of a standard that has received little academic attention.

Related party transactions, corporate governance and earnings management

2018 ◽  
Vol 18 (6) ◽  
pp. 1124-1146 ◽  
Author(s):  
Pier Luigi Marchini ◽  
Tatiana Mazza ◽  
Alice Medioli
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Least Squares ◽  
Positive Association ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Related Party Transactions ◽  
Governance Indicator ◽  
Contingency Perspective ◽  
Good Corporate Governance

Purpose Following the contingency perspective, this paper aims to examine if a good corporate governance structure is able to reduce earnings management made through related party transactions. The authors expect that a high-quality corporate governance influences private benefit acquisition and reduces the positive association between related party transactions and earnings management. Design/methodology/approach A two-stage least squares instrumental variable approach is used to further address endogeneity concerns in this study. The model is organized into three parts: the construction of the corporate governance indicator, the first stage regression to compute the predicted corporate governance indicator and the second stage regression (ordinary least squares multivariate regressions) to analyze the relationship between related party transactions and earnings management. The analysis focuses on a sample of Italian listed companies over the period 2007-2012. Findings The study finds that the interaction between sales-related party transactions and corporate governance is negatively associated with abnormal accruals, signaling that corporate governance quality reduces the positive association between sales-related party transactions and earnings management, consistently with the contingency perspective. Originality/value The research contributes to literature by empirically testing the assumption of contingency perspective. In particular, the results provide new insights to the academic community, underlying that good corporate governance mechanism helps to reduce earnings management behavior through related party transactions.

Corporate governance and detrimental related party transactions

2019 ◽  
Vol 27 (2) ◽  
pp. 196-227
Author(s):  
Masood Fooladi ◽  
Maryam Farhadi
Keyword(s):  
Corporate Governance ◽  
Firm Value ◽  
Social Implications ◽  
Policy Makers ◽  
Content Type ◽  
Conflict Of Interests ◽  
Related Party Transactions ◽  
Distinct Effect ◽  
Opportunistic Behaviour ◽  
Practical Implications

PurposePrior studies suggest that most expropriation of firm’s resources is conducted through related party transactions (RPTs). Based on the conflict of interest view, related parties opportunistically use their authorities to expropriate firms’ resources for their own benefits via RPTs subsequently increasing agency costs and reduce firm value. One important monitoring system suggested by agency theory to reduce the agency problem is corporate governance (CG). CG monitors firm’s performance to align the interests of those who control and those who own the residual claims in a firm. The purpose of this paper is to investigate the moderating effect of CG characteristics on the relationship between RPTs and firm value.Design/methodology/approachIn order to clarify the distinct effect of RPTs, this study categorises RPTs into two groups including beneficial and detrimental RPTs (DRPTs). Applying “proportionate stratified random sampling”, this study covers a panel of 271 firms listed on Bursa Malaysia over the period of 2009–2011, using a moderated multiple regression model.FindingsThis study documents that firm value is positively associated with beneficial RPTs (BRPTs) and negatively related to detrimental RPTs (DRPTs). In addition, results show that divergence can intensify the negative relationship between DRPTs and firm value. Findings support the necessity for more scrutiny by regulators, policy makers and standard setters to monitor the conflict of interests in RPTs and restrain the power of related parties to protect the firm’s wealth by introducing stricter regulations for RPTs and improve CG practices especially to monitor RPTs in order to limit the opportunistic behaviour of related parties.Research limitations/implicationsResearch implications have been presented in Section 10. It has also been summarised in practical implications and social implications sections.Practical implicationsThe findings of this study indicate that investors, creditors and policy makers should not consider all RPTs as harmful transactions and it seems necessary to categorise RPTs into different groups including transactions which are detrimental and transactions which are beneficial to the firm.Social implicationsThe findings of this study support the necessity for more scrutiny by regulators, policy makers and standard setters to monitor the conflict of interests in RPTs. They should restrain the power of related parties to protect the firm’s wealth by introducing stricter regulations for RPTs and improving CG practices especially to monitor RPTs in order to limit the opportunistic behaviour of related parties.Originality/valueThis study contributes to the RPTs literature by showing that the effect of RPTs on firm value depends on the types of RPTs, and market participants allocate different values to different types of RPTs. Therefore, to fill the gap and clarify the distinct effect of RPTs, this study categorizes RPTs into two groups including beneficial and detrimental RPTs.

Related-party transactions: a review of the regulation, governance and auditing literature

2018 ◽  
Vol 33 (8/9) ◽  
pp. 779-806 ◽  
Author(s):  
Moataz El-Helaly
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Negative Effects ◽  
Audit Risk ◽  
Policy Makers ◽  
Content Type ◽  
Related Party Transactions ◽  
Corporate Scandals ◽  
Increased Risk ◽  
Starting Point

PurposeSeveral studies, especially in Asian economies, have investigated the antecedents, implications and consequences of related-party transactions (RPTs). This paper aims to review this literature to collate, gauge and critically discuss understandings of the relationship between RPTs and risk, with a particular focus on audit risk.Design/methodology/approachThe paper discusses RPTs and how they have been associated with corporate scandals and the expropriation of shareholders’ wealth. RPTs are defined as per accounting standards and the main types of RPTs are described based on the extant literature. Two key research design issues are discussed: measures used to operationalize RPTs and observable variations in sample size across RPT studies. Evidence is presented on the negative effects of RPTs and the role of regulation, corporate governance and auditing in reducing risks.FindingsPrior studies have associated RPTs with the expropriation of shareholders’ wealth, declining firm valuations, lower-quality financial reporting, increased risk of material misstatements and decreases in long-term firm performance. Further, the evidence suggests that regulation, corporate governance and auditing can mitigate the negative effects of RPTs.Practical implicationsThis paper provides insights for regulators on the effects of enforcement, corporate governance and external audits on reducing the negative effects of RPTs, and highlights the increased risk of material misstatements in financial statements when RPTs are conducted. Moreover, it reveals how RPTs affect risk assessments for auditors.Originality/valueThis paper represents the first comprehensive review of the empirical RPT literature. It provides a starting point for future investigations of RPTs, not least because it reveals important limitations with the extant body of research in this domain. It also offers salient insights and implications for practitioners and policy makers.

Related party transactions disclosure in the emerging market of the United Arab Emirates

2017 ◽  
Vol 30 (4) ◽  
pp. 362-378 ◽  
Author(s):  
Walaa Wahid ElKelish
Keyword(s):  
Corporate Governance ◽  
Regression Analysis ◽  
Multiple Regression Analysis ◽  
United Arab Emirates ◽  
Emerging Market ◽  
Market Competition ◽  
Product Market Competition ◽  
Content Type ◽  
Related Party Transactions ◽  
Corporate Governance Mechanisms

Purpose This paper aims to measure the extent of related party transactions disclosure and investigates their determinants across all listed companies in the United Arab Emirates (UAE) stock market during 2010 to 2012. Design/methodology/approach An index was manually constructed for related party transactions disclosure in accordance with International Financial Reporting Standards (IFRS) (IAS 24) using company financial statements. Findings Empirical results show relatively low level of related party transactions disclosure in the UAE emerging market. Furthermore, the multiple regression analysis (OLS) shows that related party transactions disclosure has significant relationships with the number of board members, audit quality, block-holders’ ownership, company size, leverage and product market competition. The multiple regression analysis (OLS) also highlights that industry type plays a significant and crucial role in disclosure levels across companies. Research limitations/implications This paper does not control for some corporate governance mechanisms such as audit committee characteristics. Practical implications This paper provides useful guidelines for several stakeholders including policy makers, accounting standard setters and corporate managers. Originality/value IFRS (IAS 24) standards were used to measure the strength of related party transactions disclosure. In addition, several variables were tested such as corporate governance mechanisms, ownership structure and product market competition on related party transactions disclosure over time; in an emerging market such as the UAE.

Analysis on corporate governance compliance standards in New Zealand – a qualitative study on disclosures using content analysis and interviews

2018 ◽  
Vol 26 (4) ◽  
pp. 505-525 ◽  
Author(s):  
Allan Chang
Keyword(s):  
Corporate Governance ◽  
Content Analysis ◽  
New Zealand ◽  
Listed Companies ◽  
Auditor Independence ◽  
Annual Reports ◽  
Small Country ◽  
Best Interest ◽  
Content Type ◽  
Code Of Corporate Governance

Purpose This paper aims to provide more insights into the standard of corporate governance in New Zealand. The study intends to uncover how a small country with a well-developed economy with a good system of law and order, good institutional set up and law enforcements and implements the principles contained in the FMA’s corporate governance guidelines in practice. Design/methodology/approach The study is a mixed study one where it employs case study content analysis and augmented by conducting interviews. Large companies are selected to ascertain the level of compliance of NZ companies towards their obligations to report on corporate governance practices within the organisation. At the first stage, the study uses content analysis and looks at contents of company annual reports and publications on websites to determine whether they had disclosed as intended by New Zealand’s corporate governance guidelines. Findings The study found that a high compliance was recorded in areas such as board composition and board committees and low compliance recorded in areas involving costly implementation or when the issue is sensitive such as disclosures regarding remuneration details of directors and what non-audit work was undertaken and whether it compromises auditor independence. Being a small country, NZ has performed well in attracting foreign investment due to its strong tradition of law enforcement and respect for regulations. With greater awareness of the importance of corporate governance to investors, companies may see the benefit of greater compliance with the corporate governance guidelines. This is in line with the stakeholder theory and resource dependency theory where companies will voluntarily disclose information on corporate governance, social and environmental performance over and above mandatory requirements to appease and manage their stakeholders. Research limitations/implications The sample size of this study represents 3 per cent of total listed companies in New Zealand, but the sample is approximately 10 per cent of local NZ listed companies (i.e. not dual listed in Australia). There are 36 large companies in the New Zealand stock market with market capitalisation of 1 billion and above. In addition, the companies selected for this study are well-known in New Zealand, and it is acknowledged that this can be a source of bias in my analysis. Practical implications As was revealed during the interviews with company’s senior officials, Australian companies have achieved a higher level of compliance with the code of corporate governance. In this regard, New Zealand will have to step up and follow Australia’s lead to ensure greater compliance with the New Zealand corporate governance principles and guidelines. It would be in the best interest of the company’s stakeholders if full compliance is achieved. Originality/value Studies on the level of compliance by New Zealand companies on their obligations to meet the full extent of disclosures as stipulated by the New Zealand corporate governance guidelines are rare. This study aims to ascertain the standard of corporate governance reporting in New Zealand and the company’s seriousness to comply or attempt to meet the requirements in the seven stipulated principles.

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