Research Question/Issue
This research examines the relationship between board processes and corporate financial risk. Using a unique questionnaire survey about board behavior, several measures ...related to board processes are developed and used to explain certain aspects of financial risk during the recent crisis.
Research Findings/Insights
In a sample of 141 companies with complete data collected from company chairs on both board structure and process, board process is found to be an important determinant of financial risk during the crisis of 2008–2009. In particular, financial risk is lower where non‐executive directors have high effort norms and where board decision processes are characterized by a degree of cognitive conflict. The impact of cognitive conflict is, however, found to be less pronounced in boards with high levels of cohesiveness.
Theoretical/Academic Implications
The study provides theoretical and empirical advancement of the governance literature towards an understanding of group process‐oriented views of boards' work and effectiveness. This study identifies the significance of board processes and their impact on financial risk supported by quantitative empirics. Findings of a strong relationship between board process and financial risk augment existing theories to suggest that the effects of boards work through group processes that bring executives and non‐executives together in relations laced with control and collaboration.
Practitioner/Policy Implications
Regulators, acting post the financial crisis have produced governance codes that emphasize risk management as a key responsibility of boards. The link between board process and financial risk established in this paper provides evidence for company chairs and other directors on the possibilities and potential effectiveness of boards in discharging this responsibility.
•This study examines the impact of change to IFRS on the profit and equity of AIM listed companies.•The pre- and post-IFRS regimes are examined with data from the financial statements under IFRS ...1.•We find the IFRS based profit as higher than UK profit but the difference is smaller than large firms.•In contrast to existing evidence we only find a marginal effect of IFRS on equity of AIM companies.•We argue that barriers to harmonisation should be realised before changing accounting regulation.
This study examines the extent to which the change from UK GAAP to IFRS has affected companies listed on the Alternative Investment Market (AIM) in the UK. The results suggest that, on average, profit reported under IFRS is higher than that reported under UK GAAP; however, the difference is much smaller for AIM listed companies as compared to what existing literature suggests for firms listed on main stock markets. The Gray's partial analysis results indicate that despite the extensive programmes for improving convergence over time there is still a considerable discrepancy between IFRS and UK GAAP.
This study examines how shocks to the supply of credit during the financial crisis of 2007–2009 affect the financing and investment policies of private companies in the United Kingdom. To investigate ...this issue we adopt a fixed effects model as our research methodology. Our final sample includes a total of 4973 firms. Our results highlight that the recent credit crisis has adversely affected the leverage ratio of private firms. This effect is most significant on short term financing channels such as short term debt and trade credit. As a consequence, private firms hold cash and issued equity for hedging the negative effect of credit contractions. However, no evidence was found on the issue of net debt issue or obtaining longer trade credit as substitutes for preserving their financial slack by the private firms. The results also revealed, that private firms did not scale back shareholder distribution in response to their financial difficulties. The results further highlight that credit contraction has negatively affected the performance and investment of private firms. Moreover, the increase in cash reserve and decrease in investment would suggest that firms may have raised funds through equity for managing their cash balances. Overall, the results highlight that financial and investment policies of private firms are susceptible to variations in the supply of credit and firms which are unable to find alternative sources of finance may bear a much larger cost compared to those who manage their financing more appropriately. Our findings have implications for the ongoing financial crisis as well as future policy designs by monetary and banking authorities.
► The findings of this study highlight that the recent credit crisis has adversely affected the leverage ratio of private firms. ► This effect is most significant on short term financing channels such as short term debt and trade credit. ► As a consequence, private firms hold cash and issued equity for hedging against the negative effect of credit contractions. ► The findings further highlight that credit contraction has negatively affected the performance and investment of private firms and firms which are unable to find alternative sources of finance may bear a much larger cost compared to those who manage their financing more appropriately.
This paper investigates the implications of the adoption of International Financial Reporting Standards (IFRS) from the perspective of small and growing companies listed on the United Kingdom's (UK) ...Alternative Investment Market (AIM). We consider the cost–benefit issues of IFRS adoption and investigate its economic consequences. The results reveal that only a small number of comparatively larger AIM companies have voluntarily adopted IFRS for some anticipated economic objectives. The results also suggest that most of the mandatory adopters have done so for regulation compliance purposes and they would not have adopted IFRS if a choice was available to them. As the existing literature mainly covers the impact of IFRS adoption on large listed companies, the findings of this study will give better insights into extending IFRS to private companies. The findings show an association between the early adoption of IFRS and firm size and conclude that size matters in both the adoption and implications of IFRS. This study also contributes to the debate on the implications of the new IFRS‐based UK GAAP for SMEs‐FRS 102, which will replace the majority of existing UK accounting standards for small and medium enterprises (SMEs) with effect from 2015. Our findings have implications for managers, regulators, market participants, practitioners and other stakeholders.
The study provides evidence that size matters in both the adoption and implications of International Financial Reporting Standards (IFRS). It offers updated evidence of the costs and benefits of IFRS adoption and its potential implications during the period 2005–2010 in the UK and argues against the appropriateness of IFRS for alternative investment market companies.
This paper examines the impact on covenants in the debt contracts of companies of the impending change to international accounting standards (IAS). The primary focus of the paper is the UK debt ...market, but comparisons are drawn with other EU countries that will also be affected by the adoption of IAS. Existing evidence of the nature of debt covenants and the impact of accounting regulation change on such covenants is briefly reviewed. It is argued that the adoption of IAS will have a significant impact both on reported earnings and on balance sheet values. Moreover, it is argued that the adoption of IAS will increase the volatility of earnings. It is further argued that, as a consequence of these effects, there will be a significant impact on debt covenants given the widespread use of rolling GAAP. A number of cases and hypothetical examples are provided to illustrate the impact of the adoption of IAS.
The use of credit ratings in financial and other legal documents - both in the USA and Europe -, has led to a situation in which the major rating agencies have become (largely unwilling) participants ...in the legislative process. This situation has become partly formalized in the US (and is being repeated elsewhere in the European Union, Eastern Europe and Latin America) through the creation of officially 'recognized' agencies whose ratings now carry the imprimatur of the Securities and Exchange Commission. The purpose of this paper is to contribute to the debate on the necessity for formal legal status to be sustained in the market for bond credit ratings. In this context, the criteria for a credible rating agency are examined and evidence is provided on one element of the criteria which is under-researched: namely, the impact of the ratings in the market place. The influence of rating agencies in international capital markets is assessed through an analysis of the impact of ratings on the yields of bonds, represented by a comprehensive sample of actively traded debt. The sample contains analysis of ratings introductions on both new and seasoned debt and also examines the impact of ratings revisions. It is concluded that official recognition has no market-based role and it is argued that ratings are used by regulators because of the success of the major agencies in performing their market function.
This paper proposes a new rationale for understanding managerial contracts which set-out to induce stock price volatility in the form of granting of executive stock options. First, we suggest that ...previous research focuses too much on short term volatility effects and offering neither a theoretical or empirical perspective on incentives which might influence long-term behaviour. To address this, we offer a theoretical structure of why managerial incentives might be important in determining the evolution of volatility over the life of an option contract and provide empirical support for our views. Second, we examine the impact of option moneyness on managerial behaviour over time and provide an analysis, with supporting empirical work, of the unintended incentives thereby created. Our approach suggests that volatility-inducing contracts do not work in the intended manner and supports a growing body of work which indicates that option-based remuneration does not incentivise managers to enhance corporate performance. Our evidence is within a UK context, based on a near-population sample size.
The concentrations of diffusible Ca and Mg in milk diffusates from 3 goats were determined before, during and after a 2-d period of starvation. Free Ca-concentrations were determined by a murexide ...method and compared with values calculated from a detailed model of the ion equilibria. It was shown that diffusible Ca increased as citrate increased during fasting and both decreased after refeeding, but there was a difference of about half a day in the response curves, with citrate following Ca. The difference was accounted for mainly by a change in free Ca2+ concentration which in turn was related mainly to changes in milk pH. Diffusible Mg underwent changes similar to those of diffusible Ca.
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