Finance - Theses
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ItemUser information satisfaction: the effect of a strategy - MIS scope alignment and the role of information system management( 1998)This thesis develops a theoretical model to improve our understanding of how the management information systems/information technology (IS/IT) resources influences user information satisfaction. Understanding this relationship is important not only because of the significant proportion of the total resources now devoted to IS/IT but also because organisations are increasingly recognising that the effective management of these resources is critical to achieving and maintaining competitive advantage. The study focuses on the possible causes of user information satisfaction. The core proposition developed is that the type of information provided by management information systems will be related to, or matched with, an organisational unit's strategy. It is then argued that, when this match exists, user information satisfaction is higher than it would otherwise be. Further, it is argued that the capacity of the information system function to manage the IS/IT resources throughout the organisation is a possible cause of this match. This organisational role of IS/IT resource management also affects the level of user satisfaction both directly, and indirectly through its effect on the alignment of strategy and type of information. The research model was developed by drawing together separate but related strands of the literature in the information systems, management and accounting disciplines and from the results of previous studies. To that extent, the model is exploratory, but each of the individual propositions identified in the model, and subsequently tested, are theoretically based. To test the model and the research hypotheses, a survey was undertaken in manufacturing organisations. Data were collected from 192 production managers and 117 information system managers in 153 different manufacturing firms. The research model was evaluated both at the firm level of analysis and at the departmental level. Bivariate correlations, path analyses and structural equation modelling techniques were used to test the hypotheses and to establish the goodness-of-fit of the research model. The results from the statistical analysis strongly support the model. Users were found to be more satisfied with the information provided to them when the IS/IT resources were well managed and when organisational unit strategy was aligned with the scope of the information. Moreover, alignments between strategy and information scope were more likely in firms where the IS/IT resources were well-managed. These results are both encouraging and exciting as they support the theoretical propositions developed here. The study, therefore, has the potential not only to contribute to the research literature but also has some important practical implications for the effective management of IS/IT resources. It contributes to the literature by developing a theoretical framework that integrates a number of different strands of previous research in the related areas of accounting, management and information systems. It also adds to the literature in each of these three disciplines. It contributes to organisational understanding of the role of IS/IT resource management, of user satisfaction, and of the alignment between organisational unit strategy and management information system design. In so doing, it provides insights for more effective management of IS/IT resources and suggests reasons why some users are more satisfied with the information available in their organisations than others. While there are limitations of this research, it has the potential to make important contributions to theory and practice, and it provides several opportunities for future research.
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ItemLoan contracting and the credit cycle( 2002-04)The performance of financial institutions is significantly influenced by the actions of loan officers. The process by which lending decisions are made is therefore of critical interest to management, shareholders, and regulators alike. Indeed, the drain on bank capital that has often accompanied credit quality problems in the past has encouraged the search for new approaches towards the management of lending and related activities. This thesis seeks to examine whether existing governance and incentive techniques found in banks are sufficiently comprehensive in guiding loan decision-making. In the context of lending to the corporate sector, the study investigates the endogenous and exogenous influences surrounding the lending role, and assesses the implications for how loan officers are monitored, evaluated, and motivated to act in a financial institution’s best interests. By first developing an expanded model that conceptualizes the loan offer function, and then grounding this framework within a business cycle context, the study demonstrates the potential for governance and reward systems, that are constant through time, to have variable outcomes/effects. Support for this hypothesis is provided based on publicly available financial market information and other material gathered from private sources. A proposal is then advanced for the development of a management information system that identifies changes in credit standards being applied, thereby enabling banks to benchmark and influence loan officer performance in the context of cyclically changing attitudes to risk and the effects on negotiating power.
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ItemAn empirical study of corporate bond pricing with unobserved capital structure dynamics( 2007-05)This work empirically examines six structural models of the term structure of credit risk spreads: Merton (1974), Longstaff & Schwartz (1995) (with and without stochastic interest rates), Leland & Toft (1996), Collin-Dufresne & Goldstein (2001), and a constant elasticity of variance model. The conventional approach to testing structural models has involved the use of observable data to proxy the latent capital structure process, which may introduce additional specification error. This study extends Jones, Mason & Rosenfeld (1983) and Eom, Helwege & Huang (2004) by using implicit estimation of key model parameters resulting in an improved level of model fit. Unlike prior studies, the models are fitted from the observed dynamic term structure of firm-specific credit spreads, thereby providing a pure test of model specification. The models are implemented by adapting the method of Duffee (1999) to structural credit models, thereby treating the capital structure process is truly latent, and simultaneously enforcing cross-sectional and time-series model constraints. Quasi-maximum likelihood parameter estimates of the capital structure process are obtained via the extended Kalman filter applied to actual market trade prices on 32 firms and 200 bonds for the period 1994 to 2000. We find that including an allowance for time-variation in the market liquidity premium improves model specification. A simple extension of the Merton (1974) model is found to have the greatest prediction accuracy, although all models performed with similar prediction errors. At between 28.8 to 34.4 percent, the root mean squared error of the credit spread prediction is comparable with reduced-form models. Unlike Eom, Helwege & Huang (2004) we do not find a wide dispersion in model prediction errors, as evidenced by an across model average mean absolute percentage error of 22 percent. However, in support of prior studies we find an overall tendency for slight underprediction, with the mean percentage prediction error of between -6.2 and -8.7 percent. Underprediction is greatest with short remaining bond tenor and low rating. Credit spread prediction errors across all models are non-normal, and fatter tailed than expected, with autocorrelation evident in their time series. More complex models did not outperform the extended Merton (1974) model; in particular stochastic interest-rate and early default accompanied by an exogenous write-down rate appear to add little to model accuracy. However, the inclusion of solvency ratio mean-reversion in the Collin-Dufresne & Goldstein (2001) model results in the most realistic latent solvency dynamics as measured by its implied levels of asset volatility, default boundary level, and mean-reversion rate. The extended Merton (1974) is found to imply asset volatility levels that are too high on average when compared to observed firm equity volatility. We find that the extended Merton (1974) and the Collin-Dufresne & Goldstein (2001) models account for approximately 43 percent of the credit spread on average. For BB rated trades, the explained proportion rises to 55 to 60 percent. For investment grade trades, our results suggest that the amount of the credit spread that is default related is approximately double the previous estimate of Huang & Huang (2003). Finally, we find evidence that the prediction errors are related to market-wide factors exogenous to the models. The percentage prediction errors are positively related to the VIX and change in GDP, and negatively related to the Refcorp-Treasury spread.
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ItemThe corporate treasury function: risk management and performance measurement( 1997-05)The Australian financial system has changed dramatically in recent years, creating both threats and opportunities for value adding activities. Many large corporations have set up a separate treasury division or department to handle their financing requirements. This thesis derives the rationale for a separate treasury function from theory of the firm. A framework has been developed by drawing upon both the old theory of the firm (transaction cost economics) and the new theory of the firm (agency theory) to determine the appropriate governance structure to manage financial arrangements. Formal analysis of corporate treasury functions and performance measurement research has not kept pace with the growth of treasury activities. Appropriate benchmarks provide management with information to manage financial risk and to more accurately assess treasury performance. A benchmark is required for core treasury tasks, including debt portfolio management. Optimal treasury benchmarks are difficult to determine, due to the complexity involved in measuring financial exposures for firms which derive income from physical, rather than financial assets. The inter-relationships between financial risks, including maturity, interest rate and currency risk, further compounds the problem. Decomposition of financial risk into these respective elements allows identification of the firm specific factors that influence financial exposure. Appropriate benchmarks for managing repricing, refunding and foreign exchange risk depend upon the trade-off between transaction costs, agency costs and information signalling costs. Theory suggests growth options in real assets within the firm's investment opportunity set provide opportunities for natural hedges that offset financial risk. However, empirical analysis of share price sensitivity to interest rates and an analysis of debt maturity structure indicates growth options and agency factors are less important than firm specific characteristics when setting up benchmark portfolios to manage financial risk. Treasuries are often classified as either active or passive managers, but a continuum of strategies is possible when managing financial risk, rather than points at either end of a spectrum. Tolerance levels around the benchmark constrain activity within a relevant range - the more active the treasury, the broader the range. Constraints allow the degree of activity to be fine-tuned. The decision to actively manage risk depends upon whether value can be added in risk-adjusted terms. This is a function not only of whether opportunities exist, but also whether value can be added consistently, compared with a passive approach. The majority of practising treasurers describe themselves as 'active hedgers'. Subject to caveats outlined in the thesis, field experiments conducted over a three year period indicate the ability of corporate treasurers to add value to the firm through outperforming a passive benchmark portfolio of debt is limited. Respondents to an international survey on corporate treasury control and performance standards cited difficulty in setting benchmarks, particularly risk-adjusted benchmarks, as the major reason for not measuring treasury performance. Empirical determinants of benchmark structures for repricing risk, refunding risk and currency risk have been identified. A better understanding of the factors that determine financial risk will assist management when they are designing or refining benchmarks to manage financial risk and measure treasury performance.
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ItemFinancial Corporations Act 1974: a study in business/government relations( 1975)This report will centre on the Financial Corporations Act 1974 with the aim of providing a special study in relations between private management in the Australian finance industry and various organs of Australian government. Emphasis will be on an assessment of the part of business in the making of this new law and in the developing of new and continuing relations with government organs.
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ItemThe holiday effect in Asian stock markets: spending holidays, non-spending holidays and firm size( 2013)Calendar-based seasonalities in stock markets have attracted considerable interest among academics as well as practitioners and have been the subject of much empirical research. These seasonalities, or anomalies, refer to the proposition that stock returns exhibit regular and predictable changes that tend to recur over long periods of time. This thesis examines the effects of two calendar seasonalities, namely the holiday effect and the January effect, over a 22-year period in the stock markets of Hong Kong, Indonesia, Malaysia, Singapore and Taiwan. It provides strong evidence that only those holidays associated with heavy consumer spending affect return patterns. By exploiting the fact that the timing of many festivals in Asia varies relative to the Gregorian calendar, the thesis is also able to separate year-end effects from holiday effects. It is also found that the effects are stronger in smaller firms. This thesis is the first to test simultaneously for calendar effects in five Asian markets using daily stock prices collected from one data source. Furthermore, it is the first to test calendar effects at the firm level (rather than at the market index level) in four of the five countries.
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ItemEssays on institutional investors' behaviour and performance( 2013)Chapter 1: On Market States and the Value of the Actively Managed Mutual Fund Industry This paper presents a novel approach to quantify the economic value of mutual funds’ conditional performance in bear market states. In particularly, this approach jointly evaluates fund managers’ market timing and selectivity skills across market states. After accounting for the insurance premium of managers’ conditional performance in bear states, this study finds that the extra benefit arising from active mutual fund management in bad times could largely compensate for its cost at the aggregate level. Chapter 2: Mutual Fund Performance, Momentum Trading and January Seasonality This paper demonstrates that the actively managed U.S. equity mutual fund does not underperform the CAPM, Fama–French three-factor, and Carhart four-factor benchmarks during 11 months of the year. In contrast, mutual funds considerably underperform the passive benchmarks in January. We find that the January underperformance is due largely to mutual fund managers chasing momentum trends, which experiences a dramatic reversal in January. Since fund managers disproportionally overweight medium-cap winners at the end of the year, the subsequent reversal of these past winners significantly drags down the average returns of mutual funds in January.
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ItemEssays on momentum investing( 2013)Chapter 1: This paper reexamines the apparent success of two prominent stock trading strategies: long-term contrarian and intermediate-term momentum. The paper demonstrates that long-term contrarian is entirely attributable to the classic January size effect, rather than to investor overreaction, as argued by De Bondt and Thaler (1985). Further, the paper also resolves the Novy-Marx (2012) concern about whether return autocorrelation “is really momentum” by demonstrating that the superior performance of intermediate-term momentum is due to strong January seasonality in the cross-section of returns. The implications are that long-term contrarian must be considered largely illusory, and intermediate-term momentum must take account of annual seasonalities in returns. Chapter 2: Macroeconomic risk continues to be proposed as a source of stock price momentum. For instance, Liu and Zhang (2008) claim that the growth rate of industrial production “plays an important role in driving momentum profits”. This paper shows that the growth rate of industrial production is not the source of momentum profits. Because recent winners and recent losers have nearly identical loadings on the growth rate of industrial production outside of January, there is essentially a net zero factor loading in the 11 months of a year when momentum does exist, and a difference only in January, when losers massively outperform winners. We also document the fact that the growth rate of industrial production is not a priced risk factor outside of January. Moreover, application of the same methodology to all factors reveals no evidence that an explanation for momentum profits lies in macroeconomic risk.
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ItemEssays on distress risk and stock returns( 2012)Essay 1. Understanding the Distress Puzzle: Surprises in the Pre-Delisting Period This study decomposes realized returns into expected and unexpected returns and shows that the persistently low unexpected returns two years before a firm’s delisting due to financial distress (the pre-delisting period) drive the negative cross-sectional relation between distress risk and realized stock returns documented in previous studies. Investors are surprised by lower-than-expected firms’ earnings and stock returns in the pre-delisting period, especially around earnings announcements when they correct their valuation errors about the firms’ future prospects. Essay 2. Distress Risk and Stock Returns: Evidence from Earnings Announcements This paper finds that stocks with high distress risk earn an average market-adjusted return of 0.62% during the five days before earnings announcements and a corresponding average return of -0.96% in the five days after earnings announcements. The five-day post-announcement spread in returns between stocks with the highest and lowest distress risk accounts for a large portion of the negative annual spread in returns. Changes in risk around earnings announcements or cross-sectional differences in risk cannot explain the run-up and subsequent reversal in distressed stocks’ returns. Consistent with the mispricing hypothesis, the pattern in returns only exists in distressed stocks with both binding short-sales constraints and high divergence in investors’ opinion. Essay 3. Are Firms with Negative Book Equity in Financial Distress? This study examines the operating performance and financial characteristics of firms with negative book equity (BE) for signs of financial distress in the period surrounding the year when they first report negative BE and their subsequent survivability and stock returns. I find firms with small magnitude of negative BE (SNBE firms) suffer from persistent negative earnings and financial distress, while firms with large magnitude of negative BE (LNBE firms) experience a temporary shock to their earnings and BE. Unlike SNBE firms, most LNBE firms report consecutive years of negative BE, but they survive for many years. Moreover, LNBE firms have lower distress risk and failure rate than both SNBE firms and positive BE control firms. Although LNBE stocks outperform SNBE stocks subsequent to their first report of negative BE, both of them underperform control firms with positive BE.
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ItemAn architecture for computer-based accounting information systems( 1991)The question addressed in this thesis is whether cost-effective, computer-based accounting systems can be used to generate "better" accounting information than existing transaction processing accounting systems. The first half of the thesis is devoted to gathering and summarizing information about how computer-based accounting systems work today, and what might constitute "better" accounting information. Data about present-day computer-based accounting systems was collected by mail questionnaires and personal reviews of widely-used packaged accounting software. Information about what constitutes "better" accounting information was collected, first, by reviewing the normative accounting literature, second, by reviewing the empirical literature on the inflation accounting experiments in the US (SFAS 33) and UK (SSAP 16), and third, by reviewing the academic literature on computer-based accounting, particularly the work of Ijiri, McCarthy, and Weber. To reconcile the apparent conflict between the empirical evidence that (a) inflation accounting is essential in times of very high inflation and (b) the empirical studies had found very little evidence of additional information content in SFAS 33 and SSAP 16 reports, it is suggested that the benefits of inflation accounting must only become apparent when general price-level changes exceed, say, 15% - 20% p.a.. Thus the ideas of the normative theorists are not rejected, and it is decided that a computer-based general ledger system that (a) is inflation-tolerant, (b) draws its data from the firm's transaction processing system database, and (c) can provide accounting reports based on different sets of accounting rules (called Multiview Accounting), would be likely to meet the objectives for the thesis. The second half of the thesis focuses on the design of such a system. To build inflation-tolerance into the profit measurement system, it is proposed that the constant-value journal entries and constant-value ledger account balances of conventional ledger systems should be replaced by formulae like those in spreadsheets. It is shown that a coherent system of double-entry bookkeeping, called Formula Accounting, can be developed, where ledger account balances may be functions of any variable that is likely to change in value over time, e.g., time itself, stock market prices, and price-index series. For automatic generation of Formula Accounting (FA) journal entries it is proposed that either the firm's many special-purpose transaction processing systems should be modified, or that a combination of (a) a specially-defined accounting data model (called the REE model), and (b) a computer program that encodes the rules used by accountants when they prepare journal entries (called an Interpreter), should be developed. To demonstrate the feasibility of all these proposals, a prototype REE-Interpreter-FA system was developed in roughly 4,000 lines of Prolog. Multiview Accounting is illustrated by using the prototype system to generate Historical Cost and Current Cost/Constant Purchasing Power interpretations of representative Exchange Events for both a trading firm and a manufacturing firm.