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MASTER OF ECONOMICS RESEARCH
DISSERTATION
The Influence of Institutional Shareholders on the
Corporate Governance Practices and Financial
Performance of
Australian Public Listed Companies

PETER NORMAN RAMPLING BFinAdmin (NE), ASA
UNIVERSITY OF NEW ENGLAND
NEW SOUTH WALES
AUSTRALIA

A dissertation submitted as partial fulfillment of the requirements for the degree,
Master of Economics,
New England Business School
University of New England
ARMIDALE, NEW SOUTH WALES
AUSTRALIA
January, 2007

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CERTIFICATE OF ORIGINALITY
I certify that the substance of this dissertation has not already been submitted
for any degree and is not currently being submitted for any other degree or
qualification.
I certify that any help received in preparing this dissertation, and all sources
used, have been acknowledged in this dissertation.

……………………………………………
PETER NORMAN RAMPLING
January 2007

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ACKNOWLEDGEMENTS

In preparing this dissertation represents a substantial step forward in my career. A
dissertation however is not undertaken unless there is support and motivation to do so.
My father who is now deceased had always provided me and still does, with the
motivation and drive to complete such a task.
I would like to also to thank my Mother for her life long support
I would like to also thank Dr. Muhammad Jahangir Ali, Dr. Kala Saravanamuthu,
Professor Ray Cooksey and Professor Ian Eddie for their guidance and source material
provided.
I would like to also thank my supervisor John Whitman for his guidance and source
material provided.

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ABSTRACT

Corporate governance has evolved out of the need for regulation of corporations. The
prime motivation of this dissertation is to evaluate the current levels of voluntary
disclosure compliance and financial performance of selected Australian Stock
Exchange listed public companies in Australia, in terms of control by predominately
non-institutional or institutional dominated organisations. The research source data for
the above mentioned objective is drawn randomly from the ASX list of public
companies as at May 5 2005. This dissertation draws together data which highlights
entities that are controlled by an institutionally dominated shareholder base directs the
board of directors to adopt a transparent approach to disclosure compliance under the
current ASX CGC Principles and Guidelines regime which is predominately voluntary,
with the exception of the establishment of an audit committee for those reporting
entities as per ASX listing rule 12.7. Data collated is sorted and analysed to
summarise the position of the data as against the stated hypotheses. The data is
tempered in part and reinforced in other areas by not only domestic but also global
influences and considerations. Corporate governance compliance is viewed as a
window to not only shareholders of an entity but also the wider stakeholder base and
the community at large. The wider base is encompassed by a theory termed enterprise
governance, which is becoming increasingly recognised as a more relevant theoretical
and practical strand of governance to accommodate and deal with the complexities of
modern business. The collated data is presented in tables and graphical depictions that
statistically test stated hypotheses and draw conclusions, and finally there is reference
to possible areas of further study that can be potentially undertaken to expand the
breadth of already accumulated knowledge in this area. The area being a relatively
recent inclusion in Australian corporate history largely has its beginnings from
international sources but is constantly being influenced
and as by domestic as well international forces and considerations.

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TABLE OF CONTENT
PAGE

Title Page
Certificate of Originality
Acknowledgements
Abstract
Table of Contents
List of Appendices
List of Tables
List of Figures

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Part I Introduction
CHAPTER 1: INTRODUCTION AND KEY INFORMATION

1.0 Introduction
1.1 Statement of the
Problem
1.2 Definition of Key Terms
1.3 Key Legislation
1.4 Motivation and
Justification of the Study
1.5 Reasons for and the
Significance of the Study

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Part II Literature Review
CHAPTER 2: CORPORATE GOVERNANCE REGULATION AND CODE

PAGE

2.0 Introduction
2.1 Profile of Australian
Listed Companies
2.2 Role of Company
Directors and Statutory
Requirements
2.3 Duty of Directors
2.4 International Factors
2.5 Economic Trade,

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Relations and External
Factors
2.6 International Financial
Reporting Standards
2.7 The Accounting and
Regulatory Environment
2.8 State of Corporate
Governance in Australia
2.9 Independence of
Auditors
2.10 Role of CFO
2.11 Role of Chairperson
2.12 Role of Audit
Committee
2.13 Role of Remuneration
Committee
2.14 Role of Nomination
Committee
2.15 Industry Sectors
2.16 Disclosure
Requirements
2.17 History of the
Corporations Act
2.18 Flow of Activity
2.19 Economic Benefits
and Costs of Regulation
2.20 Summary

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CHAPTER 3: NATURE OF CORPORATE GOVERNANCE DISCLOSURE
PRACTICE AND THEORIES OF DISCLOSURE

PAGE

3.0 Introduction
3.1 Concept of Corporate
Information Disclosure
3.2 Role of Corporate
Information Disclosure
3.3 Disclosure Problems
3.4 Disclosure Theories
3.5 Agency Theory
3.6 Stakeholder Theory
3.7 Property Rights
3.8 Transaction Cost
Economics
3.9 Separation of
Ownership and Control
3.10 Financial Regulation

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in Australia
3.11 Financial Market
Deregulation in Australia

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3.12 The US / European
Influence on and
Contribution to Corporate
Governance

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3.13 The UK Influence on
and Contribution to
Corporate Governance
3.14 The Australian
Influence on and
Contribution to Corporate
Governance
3.15 Various Influential
Studies
3.16 Majority Shareholder
Influence
3.17 Minority Shareholder
Remedies
3.18 Market Correction or
Government Intervention
3.19 Share Price as
indicator of Good/Poor
Corporate Governance
3.20 Role of Institutional
Investors
3.21 The Relationship
Between Family – Firms
and Corporate Governance
and Comparison with Non
– Family Firms
3.22 Enterprise
Governance
3.23 Summary

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CHAPTER 4: EMPIRICAL RESEARCH AND DEVELOPMENT
OF HYPOTHESIS RELATING TO CORPORATE GOVERNANCE DISCLOSURE
PAGE

4.0 Introduction
4.1 Statement of
Hypothesis
4.2 Hypothesis
Development
4.3 Profile of Non –
Institutional Controlled
Entities
4.4 Profile of Institutional
Controlled Entities
4.5 Nominee Shareholders
4.6 Substantial
Shareholders
4.7 Sample Selection
Cluster
4.8 Characteristics of the
Boards
4.9 Family Members on
Boards
4.10 Difficulties
Encountered Collecting
Sample Data
4.11 Summary

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Pt III
CHAPTER 5: RESEARCH DESIGN & METHODOLOGY
PAGE

5.0 Introduction
5.1 Research Question and
Objectives
5.2 Reasons and
Significance of the Study
5.3 Research Scope
5.4 Research Methodology
5.5 Research Design
5.6 Research Sample
5.7 Data Analysis Procedures
5.8 Model Specification
5.9 Independent Variables
5.10 Dependent Variables

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5.11 Type of and Unit of
Analysis
5.12 Parties Responsible for
Disclosure
5.13 Factors Influencing the
Decision to Disclose or Not to
Disclose
5.14 Population and Sample
5.15 Sample Size
5.16 Sampling Method
5.17 Scoring the Disclosure
Items
5.18 Disclosure Index
5.21 Data Collection
5.22 Treatment of Outliers
5.23 Observed Dependent
and Independent
Relationships/Associations
5.24 Descriptive Analysis
5.25 Hypothesis Testing
5.26 Univariate Analysis
5.27 Multivariate Analysis
5.28 Summary

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CHAPTER 6: RESULTS OF EMPIRICAL RESEARCH RELATING TO
CORPORATE GOVERNANCE DISCLOSURE AND FINANCIAL PERFORMANCE
PAGE

6.0 Introduction
6.1 Univariate / Descriptive
Statistics
6.2 Multivariate Analysis
6.3 Multiple Regression
Analysis
6.4 Summary

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CHAPTER 7: CONCLUSIONS AND RECOMMENDATIONS FOR FURTHER
RESEARCH

7.0 Introduction
7.1 The Research and Scope
7.2 Voluntary Disclosure
7.3 Corporate Governance
Characteristics
7.4 Extent of Voluntary
Disclosure
7.5 Suggestions for Further
Research
7.6 Summary

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APPENDICES
PAGE
Appendix A: Global
Corporate Governance
Reports, Studies and
Resources of Influence
Appendix B: ASX Corporate
Governance Council
Principles of Good
Governance and Best
Practice Recommendations
Appendix C: List of Annual
Report Hyperlink References
Appendix D: Multiple
Regression Tables

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PAGE
BIBLIOGRAPHY
Bibliography

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LIST OF TABLES
Table 2.1: Industry Sectors
Table 2.2: History of the

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xi
Corporations Act
Table 4.1: Board Positions
by Gender
Table 6.1: Factor Analysis
Cumulative Percentages
Table 6.2: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure per Sector
Table 6.3: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Paired Samples Statistics for
Institutional and Non
Institutional Materials
Dominated Entities
Table 6.4: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Paired Samples Correlations
for Institutional and Non
Institution al Materials
Dominated Entities
Table 6.5: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Paired Samples Statistics for
Institutional and Non
Institutional Miscellaneous
Dominated Entities
Table 6.6: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Paired Samples Correlations
for Institutional and Non
Institutional Miscellaneous
Dominated Entities
Table 6.7: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Descriptive Statistics for
Institutional Dominated
Materials Entities
Table 6.8: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Descriptive Statistics for
Institutional Miscellaneous

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Dominated Entities

Table 6.9: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Descriptive Statistics for Non
Institutional Materials
Dominated Entities
Table 6.10: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure Compliance
Descriptive Statistics for Non
Institutional Miscellaneous
Dominated Entities
Table 6.11: Paired Samples
Test for Levels of
Significance for Institutional
Materials and Non
Institutional Materials
Dominated Entities
Table 6.12: Paired Samples
Test for Levels of
Significance for Institutional
Miscellaneous and Non
Institutional Miscellaneous
Dominated Entities
Table 6.13: Paired Samples
Statistics for Institutional
Materials Dominated Entities
Table 6.14: Paired Samples
Correlations for Institutional
Materials Dominated Entities
Table 6.15: Paired Samples
Test for Institutional
Materials Dominated Entities
Table 6.16: Paired Samples
Statistics for Non Institutional
Materials Dominated Entities
Table 6.17: Paired Samples
Correlations for Non
Institutional Materials
Dominated Entities
Table 6.18: Paired Samples
Test for Non Institutional
Materials Dominated Entities
Table 6.19: Paired Samples
Statistics for Institutional
Miscellaneous Dominated
Entities

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Table 6.20: Paired Samples
Correlations for Institutional
Miscellaneous Dominated

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Table 6.21: Paired Samples
Test for Institutional
Materials Dominated Entities
Table 6.22: Paired Samples
Statistics for Non Institutional
Miscellaneous Dominated
Entities
Table 6.23: Paired Samples
Correlations for Non
Institutional Miscellaneous
Dominated Entities
Table 6.24: Paired Samples
Test for Non Institutional
Materials Dominated Entities
Table 6.25: Descriptive
Statistics (ROTC)
Institutional Materials
Dominated Entities
Table 6.26: Descriptive
Statistics (ROA) Non
Institutional Materials
Dominated Entities
Table 6.27: Descriptive
Statistics (ROE) Non
Institutional Materials
Dominated Entities
Table 6.28: Descriptive
Statistics (ROTC) Non
Institutional Materials
Dominated Entities
Table 6.29: Descriptive
Statistics (ROA) Institutional
Miscellaneous Dominated
Entities
Table 6.30: Descriptive
Statistics (ROE)
Miscellaneous Dominated
Entities
Table 6.31: Descriptive
Statistics (ROTC) for
Institutional Miscellaneous
Dominated
Table 6.32: Descriptive
Statistics (ROA) for Non
Institutional Miscellaneous
Dominated
Table 6.33: Descriptive
Statistics (ROE) for Non
Institutional Miscellaneous

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Dominated
Table 6.34: Descriptive
Statistics (ROTC) for Non
Institutional Miscellaneous
Dominated
Table 6.35: Summary of All
Statistical Data Table

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LIST OF FIGURES

Figure 1.1: Dissertation Plan
and Outline
Figure 2.1: Australia’s Real
Gross Value Added by
Industry – 2004
Figure 2.2: Flow of Activity
Flow Chart
Figure 3.1: Main Theories
Influencing the Development
of Corporate Governance
Figure 3.2: The Corporation
and its Stakeholders
Figure 3.3: Financial
Regulatory Flowchart
Figure 3.4: AWB Share
Movement Chart
Figure 5.1: Graphical
Research Design Plan
Figure 5.2: Data Variable
Scatter Graph
Figure 6.1: ASX CGC
Principles and Guidelines
Voluntary Levels of
Disclosure per Sector
Figure 6.2: ASX CGC
Principles and Guidelines
Voluntary Levels of
Compliance Histogram for
Institutional Dominated
Materials Entities
Figure 6.3: ASX CGC
Principles and Guidelines
Voluntary Levels of
Compliance
Histogram for Institutional
Dominated Miscellaneous
Entities
Figure 6.4: ASX CGC
Principles and Guidelines
Voluntary Levels of
Compliance

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Histogram for Non
Institutional Dominated
Materials Entities
Figure 6.5: ASX CGC
Principles and Guidelines
Voluntary Levels of
Compliance
Histogram for Non
Institutional Dominated
Miscellaneous Entities
Figure 6.6: Histogram for
Institutional (ROA)
Dominated Materials Entities
Return on Assets for
Institutional Material Entities
Figure 6.7: Histogram for
Non Institutional (ROE)
Dominated Materials Entities
Return on Equity for
Institutional Material Entities
Figure 6.8: Histogram for
Non Institutional (ROTC)
Dominated Materials Entities
Return on Total Capital for
Institutional Material Entities
Figure 6.9: Histogram for
Non Institutional (ROA)
Dominated Materials Entities
Return on Assets for Non
Institutional Material Entities
Figure 6.10: Histogram for
Non Institutional (ROE)
Dominated Materials Entities
Return on Equity for Non
Institutional Material Entities
Figure 6.11: Histogram for
Non Institutional (ROTC)
Dominated Materials Entities
Return on Total Capital for
Non Institutional Material
Entities
Figure 6.12: Histogram for
Institutional (ROA)
Dominated Miscellaneous
Entities
Return on Assets for
Institutional Miscellaneous
Entities
Figure 6.13: Histogram for
Institutional (ROE)
Dominated Miscellaneous
Entities

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Return on Equity for
Institutional Miscellaneous
Entities
Figure 6.14: Histogram for
Institutional (ROTC)
Dominated Miscellaneous
Entities
Return on Total Capital for
Institutional Miscellaneous
Entities
Figure 6.15: Histogram for
Non Institutional (ROA)
Dominated Miscellaneous
Entities
Return on Assets for Non
Institutional Miscellaneous
Entities
Figure 6.16: Histogram for
Non Institutional (ROE)
Dominated Miscellaneous
Entities
Return on Equity for Non
Institutional Miscellaneous
Entities
Figure 6.17: Histogram for
Non Institutional (ROTC)
Dominated Miscellaneous
Entities
Return on Total Capital for
Non Institutional
Miscellaneous Entities

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CHAPTER 1
INTRODUCTION AND KEY INFORMATION

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1.0 INTRODUCTION
Information disclosed to the market in a companies’ annual report is largely voluntary
and is dependent on whether directors wish to be transparent on some matters in line
with the Australian Stock Exchange Corporate Governance Council Principles and
Recommendations; hereafter to be known as the ASX CGC Principles and Guidelines
and the ASX Listing Rules or whether to choose to be opaque on certain matters. This
Australian study reports the results of an empirical examination of Australian ASX
Corporate Governance Principles and Recommendations, to develop statistical models
to empirically test hypotheses formulated as per section 4.1 of this paper. The Chapter
states the problem of corporate governance in general, i.e. why Corporate Governance
has come to the forefront of discussion and research given the spate of corporate
collapses. Chapter one defines key terms and highlights key legislation that is integral
to corporate governance, and lastly outlines graphically a dissertation plan that is to be
followed.
1.1 STATEMENT OF THE PROBLEM
Regulation is a rising influence on Corporate Governance, in the wake of high profile
collapses HIH, OneTEL and others.
In Australia, enhanced corporate governance is a function of the ASX and more
specifically the ASX Corporate Governance Council.
The thrust of the ten principles and twenty sub recommendations of the ASX CGC
Principles and Guidelines and enclosed recommendations is to increase disclosure,
director responsibility and overall board performance of public listed companies.
The establishment and effectiveness of audit committees are very high on the agenda
of the ASX.
The requirement of audit committees for ASX public listed companies is mandatory
under ASX CGC 4.2 and ASX Listing Rule 12.7
Directors, Auditors and ASIC will undoubtedly need to do more to ensure that
financial reporting in Australia is at a level relevant to the needs of shareholders and
investors.
Corporate governance structures have traditionally been a private matter between
shareholders and managers with some state law restrictions. As Tipgos (2002) states,

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“The principal weakness of corporate governance today is the excessive concentration
of power in the hands of top management”. Rebalancing or equalizing this power is a
prerequisite for controlling management fraud and promoting accurate financial
reporting. To regain the confidence of the financial markets, a revolutionary approach
to corporate governance is needed. Formally recognising employees as a group and as
key participants in the corporate process, rather than as a factor of production and a
commodity traded in the labor market, is an important element in a transition to a more
balanced governance structure.
1.2 DEFINITION OF KEY TERMS
Corporate Governance principles and recommendations refer to the guidelines that
have been set down by the Australian Stock Exchange (ASX). The guidelines set out
are the ASX Corporate Governance Council Principle and Guidelines.
Voluntary Disclosure Compliance refers to those items of disclosure that are not
mandated but recommended. With in the ASX CGC Principle and guidelines there are
10 recommendations and 20 sub recommendations.
1.3 KEY LEGISLATION


Corporations Act (2001)



Australian Investments and Securities Commission Act (2001)



ASX CGC Principles and Recommendations (2003)



CLERP (1999)  CLERP 9 (2004)

1.4 MOTIVATION AND JUSTIFICATION OF THE STUDY
Given the challenges that managing a corporation pose in today’s modern business
environment, it is essential that corporate governance be at the forefront of the arsenal
that boards of public listed corporations have at their disposal. Central to good
corporate governance is the influence that institutional shareholders can bring to bear
on a board of directors in which they generally having a controlling interest. It is
hypothesized that institutional shareholders have the capacity to exert the requisite
pressure on the board in corporations where said shareholders have that controlling

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interest to improve corporate governance practices and subsequently improve financial
performance.

1.5 REASONS FOR AND THE SIGNIFICANCE OF THE STUDY
The focus of this study is to attempt to association with hypotheses stated in section
4.1 of this study. That is to draw conclusions as to whether the influence of
institutional shareholders do in fact have the hypothesized impact on boards as
opposed to non – institutional shareholder controlled public listed companies, as per
results of empirical research carried out and outlined in chapter 6 of this study. The
policy implications of this study are such that whether corporations can operate more
efficiently under a system of self regulation or whether a more prescriptive approach
involving higher levels of government participation and regulation is required, or
possibly a combination of both methods.

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FIGURE 1.1 DISSERATION PLAN AND OUTLINE

Chapter 1 – Introduction

Introduction

Chapter 2 – Literature Review

Corporate Governance Regulation
and Code

Chapter 3 – Literature Review

Nature of Corporate Governance
Practice and Theories of Disclosure

Chapter 4 – The Hypothesis

Empirical Research and
Development of Hypothesis Relating
to Corporate Governance Disclosure

Chapter 5 – Research Design and
Methodology

Research Design and Methodology

Chapter 6 – Results

Results of Empirical Research
Relating to Corporate Governance
Disclosure

Chapter 7 - Conclusions

Conclusions, Limitations and
Recommendations for Further
Research

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CHAPTER 2
CORPORATE GOVERNANCE REGULATION AND CODE

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2.0 INTRODUCTION
Chapter two introduces the various sectors and Corporate Governance Regulation and
Code that operate within Australia and from which the sample has been selected.
The Australian business environment being a market economy is a fluid combination
and interaction between both public and private sectors. As part of an ongoing
interaction between these sectors there is influence felt and rendered in both quarters.
To elaborate further on influence, government through legislation can both advantage
and disadvantage the private sector by increasing or reducing taxes, increasing or
decreasing protection implements, increasing or reducing interest rates and money
supply to name but a few along with responding to changing international, economic
and environmental affects and concerns. One such area where business environment
concerns and issues are discussed is the Australian Government website Axxis
Australia, http://www.axiss.gov.au, which comments on and discusses a range of
topics and issues as well as offering advice, publications, charts and data to keep
abreast of changing conditions within the Australian business environment. This site as
well contains useful links to other relevant websites, which makes for a very powerful
business tool. The key personnel of a firm the board of directors and individual
directors are the prime corporate governance components within a firm, to ensure that
a firm is not only operating profitably but also efficiently. A component that forms a
link in the chain of these processes is transparency and disclosure of information and
practices. A detailed analysis of both functions and attributes of board members and
executives along with the mechanisms used within a firm to achieve desired corporate
governance and performance outcomes.
The relevance and purpose of chapter two is to highlight the effects that government
regulation, intervention and corporate governance has on them. As is becoming
increasingly the case there are always national and international forces and influences
at play, whether managing a national or multinational firms, these in turn are outlined
and discussed.
The importance of such regulation regarding corporate governance in Australia is to
ensure the highest possible levels of disclosure and transparency to enable current and
future investors as well as stakeholders to make prudent and informed decisions
regarding participation in an organisation of interest.

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2.1 PROFILE OF AUSTRALIAN LISTED COMPANIES
Australian listed companies range both in size and complexity across various
diversified sectors as shown in the chart below. As stated in figure 2.1, the Australian
corporate landscape as per figure 2.1 is profiled as follows: Manufacturing 11.3%,
Construction 6.8%, Mining 4.5%, Agriculture/Forestry/Fishing 3.7%, Utilities 2.4%,
Services 62.8% and Finance/Insurance 8.5%. Therefore as can be seen Australia is a
predominantly a Services/Raw Materials economy which exploits comparative
advantages in a range of areas outlined.

FIGURE 2.1 AUSTRALIA’S REAL GROSS VALUE ADDED BY INDUSTRY 2004

Readily seen how the ASX sectors summarise the activities that are carried out in the
above Axxis Chart, showing the percentages of activity across the various sector areas.

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2.2 ROLE OF COMPANY DIRECTORS AND STATUTORY
REQUIREMENTS
Company directors are duly elected by shareholders are required to manage the
company on behalf of shareholders and for the benefit of shareholders, but duty is
owed ironically to the company rather than shareholders. Company directors have
statutory requirements to be fulfilled under the company’s constitution and as outlined
in the Corporations Act (2001). A Company on incorporation has the option of
forming its own constitution and incorporating some or all of the replaceable rules in
the Corporations Act (2001) or not having a constitution at all and adopting all of the
Corporations Act (2001)F replaceable rules.
2.3 DUTY OF DIRECTORS
Duty of directors encompasses:
Common Law: A common law duty is that which the judiciaries have in response to
outcomes of past-decided cases, imposed on company directors. A well known
example of such an imposed duty is the AWA Ltd v Daniels (1992) 10 ACLC 933
which establish that company directors must exercise minimum requirements being;
-

Must obtain a basic understanding of the company’s business

-

Monitor the company’s activities

-

Monitor the company’s financial position

The standard of care now expected of directors is termed ‘Daniels’ plus s 180(1) being
the Daniels requirements plus
-

No uniform standard of care

-

The application of the reasonable persons test

-

Standard of care is largely objective rather than as before originally subjective

The company apart from common law duties to shareholders has a common law duty
to Creditors and Other Stakeholders where the company is insolvent. In times of
insolvency, requires appreciation that the interests of Creditors and Other Stakeholders
are synonymous with that of the company, required that it be appreciated that the
assets become creditor’s assets rather than shareholder assets, when solvency at
common law has not been authoritatively determined.

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Equity: A director has a duty under common law and in the court of equity to act with
due diligence as is expected of a person holding such a position.
Statute: Duty to prevent insolvent trading, under Part 5.7B of the Corporations Act
(2001) there are duties and remedies set out that relate to insolvent trading.
Constitution: Under the company’s constitution there would normally be outlined
specific duties of directors, some that may be general across the majority of companies
and others which may be individual to that particular company to which the
constitution relates.
Contract: Contractually there may be requirements set out in directors’ contracts that
stipulate duties expected and required of directors in the execution of duties as a
company director.
Fiduciary: There are fiduciary duties that relate to directors of companies, these are:
-

The duty to act in good faith

-

The duty to exercise powers for proper purpose

-

The duty to avoid conflict of interest (i.e. personal profit, competing with the
company)

-

The duty to retain discretion

-

The duty of care, skill and diligence

Source: (Turner, C.,) Australian Commercial Law (2001) pp. 752-757
2.4 INTERNATIONAL FACTORS
Given that the world economy is now largely globalised and inter – connected, factors
that have a bearing overseas also have influence in Australia. This has always been the
case, but seemingly in the modern world, influence and impact is even greater. The
most predominant influence of course is the United States with approximately $12.75
trillion of GDP in 2005. It is not only the economic but also the political landscape that
influence activity in Australia. Most recent legislation that has emerged from the

27

United States of America is the Sarbanes – Oxley Act (2002). The SOA, which is far
reaching in its intended reach and effect, is having an impact in Australia as witnessed
in certain job advertisements of late, specifying SOA compliance. As stated the
Monthly CPA Journal ‘In the Black’ (Aug 2006 pp. 44-47) ‘in year two of the
application of Section 404 of the Sarbanes Oxley Act(2002), the vast majority of senior
finance officers feel the costs outweigh its benefits’. Possibly the most controversial
section of the Sarbanes-Oxley Act (2002) is section 404. Section 404 mandates an
audit and subsequent opinion of entities’ internal control over financial reporting
performed in conjunction with an audit of financial statements. As stated by
interviewees, the cost of a section 404 audit is extremely expensive. Although
worthwhile of a mention in this study, an extensive study of section 404 is outside the
scope of this paper.
2.5 ECONOMIC, TRADE RELATIONS AND EXTERNAL FACTORS
Economic and trade relations with trading partner countries, i.e. USA, Japan, UK and
NZ, no doubt has a large impact on framing of corporate governance regulations. It is
of importance that countries that trade with each to a large extent have parity in
corporate governance regulations to ensure a compliant platform extends to promote
confidence, integrity and further trade between partners. An example where parity has
not exercised was the United Nations (UN) food for oil program, which involved the
regime of Iraq’s Saddam Hussein, which contracted with world corporations and
companies under the supervision of the UN. One such publicised Australian Company
involved in improper transactions was the Australian Wheat Board (AWB). The
improprietory of these transactions occurred when a proportion of the transaction
payments, an alleged $290 million AUD was paid to the dictators’ regime as a kick –
back or unauthorized UN payment.
2.6 INTERNATIONAL FINANCIAL REPORTING STANDARDS
The IFRS International Accounting Standards, which incorporate the previous
International Accounting Standards (IAS) series, when adopted by Australia from
January 1, 2005. The IFRS series formally merged with the AASB series from that
date to bring Australia into the 21st century along with other converting countries, i.e.

28

The European Union and New Zealand. In total the IFRS series contains 41 individual
standards. In 1973 Australia was a founding country of the former IASC now renamed
the IASB to create a broader international standard setting organisation, which was
modelled on the FASB formed in the same year in the US. Although the US is the
main driving force behind harmonised international accounting standards, the FASB
have maintained that their standards which number 154 are already more
comprehensive than the IFRS standards. The challenge for Australian regulatory
bodies is to blend the IFRS series to suit the Australian accounting environment.
http://www.iasb.org/standards/index.asp
2.7 THE ACCOUNTING AND REGULATORY ENVIRONMENT
THE CORPORATIONS ACT (2001)
Contributions of the Corporations Act (2001) are the rules, regulations of corporations
and applicable penalties for breaches. These rules are encapsulated in the various
relevant sections that relate to directors, duties and obligations. Internal governance
rules post July 1998 maybe determined by the use of replaceable rules, constitution or
a combination of both. Corporations incorporated pre July 1998 internal governance
rules are determined by Memorandum & Articles of Association. Memorandum of
association incorporate the rules of external dealings of the corporation as where the
Articles of association the rules of internal rulings.
http://www.comlaw.gov.au/

Australian Securities and Investments Commission Act (2001)
The ASIC Act (2001) is the legislation to create ASIC and administers such laws of
the Commonwealth, a state or a territory and confers function and powers under those
laws on ASIC. The other purposes are:
-

to provide for ASIC’s functions, powers and business

29

-

to establish a corporations and market advisory committee to provide
informed and expert advice to the minister about the content, operation
and administration of the corporations legislation ( other than the
excluded provisions), about corporations and about financial products
and financial markets

-

to establish:

-

A Takeovers Panel

-

A Companies Auditors and Liquidators Disciplinary Board

-

A Financial Reporting Council

-

An Australian Accounting Standards Board

-

An Auditing and Assurance Standards Board

-

A Financial Reporting Panel

-

A Parliamentary Joint Committee on Corporations and Financial
Services

Other functions that are conferred under the Act are to:
-

promote the confident and informed participation of investors and
consumers in the financial system

-

administer the laws that confer functions and powers on it effectively
and with a minimum of procedural requirements

-

receive, process and store, efficiently and quickly, the information
given to ASIC under the laws that confer functions and powers on it

-

ensure that information is available as soon as practicable for access by
the public

-

take whatever action it can take, and is necessary, in order to enforce
and give effect to the laws of the Commonwealth that confer functions
and powers on it

30

Legislation contained within both the Corporations Act (2001) and the Australian
Investments and Securities Commission Act (2001) are selectively combined as per to
form the Clerp 9 Act (2004).
http://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401
852?OpenDocument
ASX CGC PRINCIPLES AND RECOMMENDATIONS
ASX corporate governance principles and guidelines are laid down on a voluntary
rather than a mandatory basis excepting the ruling that stipulates that a public listed
corporation is required to establish an audit committee as per recommendation 4.1.
ASX CGC principles and recommendations and listing requirement 12.7 are set down
to regulate and control the decisions, activities and reporting functions of the
corporation.
CLERP
The Corporate Law Economic Reform Program (Audit Reform & Corporate
Disclosure) Act (2004) “CLERP 9 Act” was passed by Parliament on 25 June 2004
and received royal assent on 30 June 2004. The long awaited CLERP 9 Act is the
federal government’s response to the corporate collapses of recent years and aims to
restore public confidence in corporate Australia by making Australia’s corporate
governance and financial reporting regime one of the toughest in the world. The
legislation is effective from 1 July 2004, with some sections already applying, some
relate to financial years beginning on or after 1 July 2004 and others are not applicable
due to the transitional provisions of the Act.
CLERP 9 dates back to September 2002 when the federal government released a
policy proposal paper – Corporate Disclosure: Strengthening the Financial Reporting
Framework. Draft legislation was then released in October 2003 and, after a short sixweek exposure period; the CLERP 9 Bill was introduced into parliament on 4
December 2003 and passed by the House of Representatives on 16 February 2004.
Blake Dawson Waldron (2004) released a very comprehensive paper on Clerp 9, which
covered the following areas:

31



Remuneration, disclosures, directors reports, financial reporting, shareholder
participation and information



Continuous disclosure reforms



Audit Reforms



Conflict of interest management, prospectus and product disclosure statement
requirements and exemptions, enforcement and other technical amendments

As from July 1 2004 both the Australian Accounting Standards Board (AASB) and the
Auditing Assurance Standards Board (AUASB) report to the Financial Reporting
Council (FRC). In addition to the oversight of the two boards, the FRC has direct
responsibility for monitoring the effectiveness of auditor independence in Australia
FRC (2005). In CPA 108 Reporting and Professional Practice Study Guide p. 1.13 the
above points are elaborated further.
The CLERP 9 Act (2004) largely implements the recommendations of the CLERP 9
Policy paper, the HIH Royal Commission Final Report and the Ramsey Report on
Auditor Independence.
The key provisions in the Act have been summarised by the Australian legal firm,
Freehills, as follows [Freehills (2004)]
Remuneration of directors and executives:


Effective for annual reports and AGMs in respect of financial years
commencing on or after July 1 2004



Increased level of disclosure for remuneration of directors and executives in a
consolidated group



Obligation to have a remuneration report (as a separate section) in a company’s
annual report



Obligation to allow members of a company to discuss and have a ‘non-binding’
vote at its AGM on whether to adopt the company’s remuneration report



Increased obligation to seek shareholder approval before giving certain
retirement benefit.

32

Accounts and Auditor Independence:


Generally effective for financial years that commence on or after July 1 2004



Increased independence of auditors and regulation of non-audit services



Compulsory rotation of audit partners (every five years, or if sanctioned by
ASIC, every seven years)



Compulsory attendance of the auditor at AGMs for listed companies (including
a requirement to circulate a list of members’ written questions in relation to the
audit)
Financial Reporting:



Effective for financial years that commence on or after July 1 2004



CEO and CFO of a listed company to certify to the company’s board that the
financial statements present a true and fair view



Directors’ reports to include an operating and financial review of the company



A financial reporting panel to be established to resolve disputes between
companies and ASIC as to whether or not a company’s financial reports meet
the financial reporting requirements set out in the Corporations Act
Continuous Disclosure:



Effective July 1 2004



ASIC to have the ability to issue infringement notices



Increased penalties for failing to comply with continuous disclosure obligations



Clarification of ability of persons who suffer loss to recover damages even if
ASIC has not sought a declaration in regard to the alleged breach



Introduces provisions to make individuals who are ‘involved’, liable for
contravention of the continuous disclosure provisions



Provides a ‘due diligence’ defence for individuals – if they took all reasonable
steps to ensure that the entity complied with its obligations and, after doing so,
believed on reasonable grounds that the entity was complying with its
obligations.

33

Shareholder participation and information:


Enables electronic distribution of annual reports and notices of the meeting,
electronic submissions of proxy appointments and powers of attorney (effective
for notices of meetings given after September 30 2004)



Enables members to appoint a body corporate as a proxy (the body corporate
then having to nominate an individual effective July 1 2004)



Statutory requirements that notices of meetings be worded and presented in a
clear, concise and effective manner (effective for notices of meetings given
after September 30 2004)



Directors’ report to include list of directors’ other directorships and the
qualifications and experience of the company secretary (effective for financial
years that commence on or after July 1 2004)

In a bid to restore credibility to financial reporting and the audit process, there are a
number of initiatives that have been undertaken by governments and the profession,
both nationally and internationally. The Sarbanes – Oxley Act (2002) in the US, the
Ramsey Report (2001) on auditor independence and the HIH Royal Commission,
followed by CLERP 9 Act (2004).
At an International level, the International Federation of Accountants (IFAC) released
a report: Rebuilding Public Confidence in Financial Reporting’ in 2003. Some of the
specific recommendations of particular relevance to the profession include:


Incentives to misstate information need to be reduced, this should include
requiring the proper expensing of costs and clear disclosure of the terms of
share options



The threats to auditor independence need to receive greater attention in
corporate governance processes and by auditors themselves



Audit effectiveness needs to be raised primarily through greater attention to
audit control processes



Codes of conduct need to be put in place for other participants in the financial
reporting process and their compliance should be monitored



Audit standards and regulations need to be strengthened

34



Accounting and reporting practices need to strengthened (IFAC 2003a, pp. 2-4)

http://www.asic.gov.au/asic/asic_polprac.nsf/byheadline/CLERP+9?openDocument
ASX LISTING RULES
ASX listing rules are those that are formulated to stipulate the initial and on going
requirements those public listed corporations are to adhere to become listed initially
and remain listed.
ACCOUNTING PRINCIPLES AND PRACTICES
The accounting principles and practices of Australia as from January 1st 2005 have
embraced the International Financial Reporting Standards (IFRS). The former AASB
accounting standards have been merged with the substitute IFRS set of accounting
standards, becoming the Australian Equivalent International Financial Reporting
Standards (AEIFRS). The challenge of course being to adapt the new IFRS standards
to suit Australian conditions.
ENFORCEMENT MECHANISMS
The Corporations Act (2001), CLERP 9(2004) and the ASX Listing Rules all contain
enforcement mechanisms that correct and compensate stakeholders against wrong
doings perpetrated mainly by directors and external auditors of corporations. There is
however extenuating circumstances that both protect and exonerate said parties.
ASIC
The Australian Securities and Investment Commission (ASIC) is the Commonwealth
body that is charged with the purpose of incorporation and administration of Australian
corporations listed and unlisted, public and private. ASIC is also responsible for the
application of the Corporations Act (2001) and CLERP (1996) and CLERP 9 (2004).

35

ASX
The Australian Stock Exchange (ASX) is the authority that operates and administers
the share trades of Australia’s public listed corporations. The ASX establishes and
maintains listing rules as well as the ASX CGC Principles and Guidelines that
determine the requirements for a corporation to be listed initially, the rules that a
corporation must adhere to and penalties and remedies of non-compliance of listing
rules.
ACCOUNTING BODIES
There are currently three separate accounting bodies in Australia, along with one
international body these are:
-

CPA Australia

-

Institute of Chartered Accountants in Australia

-

National Institute of Australia

and the international body being:
- The Chartered Institute of Management Accountants
GOVERNMENT INFLUENCES
Influences of the Australian Government range from stipulations and requirements,
which emanate from such legislation as:
- The Corporations Act (2001)
- The Income Tax Assessment Act (1936)
- The Income Tax Assessment Act (1997)
- The Commonwealth Law and Economic Reform Programme (CLERP) (1996) and in
this case (CLERP 9) (2004) as well as indirectly through various other pieces of
relevant legislation.

36

2.8 STATE OF CORPORATE GOVERNANCE IN AUSTRALIA
Corporate Governance in Australia is a voluntary process and scripted to cover only
certain defined areas, but in the light of ongoing failures do the ASX principles and
recommendations go far enough? As laid out in chapter three, the various reports and
studies into corporate governance carried out around the globe, Australia’s corporate
governance has picked up many of the recommendations put forward in these studies.
In light of overseas collapses and responses by international governments to these
collapses, there have been changes made to make related parties to the corporation
more accountable and transparent. Once again some these changes are being picked up
in the Australian business environment, and example of this is the Sarbanes – Oxley
Act (2002). It has been noted of late that there are prominent companies such as the
ANZ Bank that are looking to implement Sarbanes Oxley into their corporate
governance regime. This move for Australian business is a rather interesting
development as The Corporations Act (2001) and the beefed up Clerp 9 do not seem to
go as far in terms of attaching accountability, disclosure and transparency for a wide
group of participants as the Sarbanes Oxley Act (2002). As stated by Mark Leibler.
(Australian Accounting Review. Melbourne: Nov 2003.Vol.13, Iss. 3; pg. 61) “In
reality, the root cause is poor management, not dubious auditing practices. Directors,
auditors and ASIC have simply not done enough to ensure that financial reporting in
Australia is at a level relevant to the needs of shareholders and investors.” This
actually reiterates a question that the author has had thoughts about. How much do the
government and regulators need to legislate and regulate? Or is it a case that simply
not enough so far has been done to curb corporate failures? As stated by
Bartholomeusz & Tanewski (2006) concepts encompassed by corporate governance
are as old as Adam Smith, the term itself has only really gained mainstream
prominence since the corporate collapses of the 1980’s. The Cadbury Commission
report (1992. p12) based on compliance with a voluntary code coupled with disclosure
was the progenitor of corporate governance discussion within the United Kingdom, the
response to a number of high profile collapses. Recommendations of the report related
to non-executive directors, audit committees, disclosure of directors’ compensation,
and disclosure of accounting statements, internal control and the role of the auditor.
The commissions’ recommendations were echoed in Australia by the Australian

37

investment managers’ Association’s “Blue Book” (1999) and later picked up by the
ASX Principles of Corporate Governance (2003).
2.9 INDEPENDENCE OF AUDITORS
Independence of auditors in recent years following numerous and high profile
collapses has become the focus of much attention globally as well as in Australia.
Audit independence is very much viewed as the crucial element that ensures disclosure
and transparency of the company’s financial results and position at a given point in
time. An auditor’s official focus has changed over an extended period:
Although only up to 1960, sees the emphasis of auditing unchanged to this day. In
literature couches the position as the official auditors focus, unofficially though it
cannot be discounted that shareholders who employ the auditor to report back at the
AGM would want the auditor still to be performing the function of old, which is
detection of fraud. Although the auditor is appointed and can be removed by
shareholders, the auditor comes very much under the direction and influence of
director/s. If there is the case that fraud is detected and the auditor is coerced or
strongly influenced by director/s, where is the independence of the auditor? Given that
independence is an item that is essentially intangible and of a subjective nature, it is
difficult to assess just how independent auditors were back in times past and to gauge
how independent auditors are in the present day. In Australia such as in other
countries, legislators and regulators have attempted with varying degrees to codify
independence. In Australia there is a body of legislation and regulations that grapples
with this issue being:
-

The Australian Auditing Standards
(http://www.auasb.gov.au/)

-

The Corporations Act (2001)
(http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html)

-

Clerp 9
(http://www.asic.gov.au/asic/asic.nsf/byheadline/CLERP+9?openDocument)

-

The ASX Corporate Governance Principles and Recommendations
(http://www.asx.com.au/supervision/governance/principles_good_corporate_go
vernance.htm)

38

Auditor independence can be attempted to be legislated, but there are variables that
although legislation and regulation try to control invariably seem to play a dominant
role. One such variable is that of large and important audit assignments, which can
only be legally terminated by a majority of shareholders at an AGM, would seem to be
influenced heavily by a director or directors.
2.10 ROLE OF CFO
The role of the CFO is to coordinate the financial aspects of the business. The CFO is
required to organize and control finances of the business, to construct and publish
financial accounts to be presented in the company’s annual report, which is presented
to shareholders at the company’s annual general meeting.
2.11 ROLE OF THE CHAIRPERSON
In his book the Company Chairman, Sir Adrian Cadbury identified the modern role of
the chairperson as ensuring the following:


that the board provides leadership and vision



that the board has the right balance of membership



that the board sets the aims, strategy and policies of the company



the board monitors the achievements of those aims



that the board reviews the resources of people in the company



that the board has the information it needs to be effective

Also identified was the chairs’ external responsibility as:


reporting financial results



corporate representative



guardian of the corporate character and conduct



arbiter of internal and external disputes

39

2.12 ROLE OF THE AUDIT COMMITTEE
The role of the audit committee is to set parameters of the audit both internal and
external, to regularly correspond with internal and external auditors as to progress and
problems encountered during the audit process, to implement, control and monitor
internal control effectiveness.
The Cadbury Report (1992) stated that:
That board should appoint audit committees, rather than aiming to carry out these
functions themselves. A separate audit committee enables a board to delegate to a subcommittee a thorough and detailed review of audit matters, it enables non-executive
directors to contribute an independent judgement and plays a positive role in an area
for which they are particularly fitted, and it offers the auditors with a direct link to the
non - executive directors. The ultimate responsibility of the board for reviewing and
approving the annual report remains undiminished by the appointment of an audit
committee, but it provides an important assurance that a key area of a board’s duty
will be rigorously discharged.
The ASX Best Practice Recommendation 4.2 provides that the board should establish
an audit committee.
The ASX Best Practice Recommendation 4.3 provides that the board should structure
the audit committee so that it consists of:


Only non – executive directors



A majority of independent directors



An independent chairperson, who is not chairperson of the board



At least three members

The ASX Best Practice Recommendation 4.4 provides the audit committee should
have a formal charter: The commentary and guidance stated as follows:
The charter should clearly set out the audit committee’s role and responsibilities,
composition, structure and membership requirements. The audit committee should be

40

given the necessary power and resources to meet its charter. This will include rights of
access to management and to auditors (external and internal) without management
present and rights to seek explanations and additional information. The audit
committee should review the integrity of the company’s financial reporting and
oversee the independence of the external auditors. The audit committee should report
to the board.

The Charter of the Audit Committee is diverse and will cover a broad spectrum within
the organisation:
Purpose
The purpose of the Audit Committee is to assist the board of directors in fulfilling its
oversight responsibilities
-

for the financial reporting process

-

the system of internal control

-

the audit process

-

the company's process for monitoring compliance with laws and regulations
and the code of conduct.

-

external reporting

-

related party transactions

-

risk management

-

external audit

-

administration
Authority

The audit committee has authority to conduct or authorize investigations into any
matters within its scope of responsibility. It is empowered to:


Appoint, compensate, and oversee the work of any registered public accounting
firm employed by the organization.

41



Resolve any disagreements between management and the auditor regarding
financial reporting.



Pre-approve all auditing and non-audit services.



Retain independent counsel, accountants, or others to advise the committee or
assist in the conduct of an investigation.



Seek any information it requires from employees-all of whom are directed to
cooperate with the committee's requests-or external parties.



Meet with company officers, external auditors, or outside counsel, as necessary.
Composition

The audit committee will consist of at least three and no more than six members of the
board of directors. The board or its nominating committee will appoint committee
members and the committee chair.
Each committee member will be both independent and financially literate. At least one
member shall be designated as the "financial expert," as defined by applicable
legislation and regulation.
Meetings
The committee will meet at least four times a year, with authority to convene
additional meetings, as circumstances require. All committee members are expected to
attend each meeting, in person or via tele- or videoconference. The committee will
invite members of management, auditors or others to attend meetings and provide
pertinent information, as necessary. It will hold private meetings with auditors (see
below) and executive sessions. Meeting agendas will be prepared and provided in
advance to members, along with appropriate briefing materials. Minutes will be
prepared.

42

Responsibilities
The committee will carry out the following responsibilities:
Financial Statements



Review significant accounting and reporting issues, including complex or unusual
transactions and highly judgmental areas, and recent professional and regulatory
pronouncements, and understand their impact on the financial statements.



Review with management and the external auditors the results of the audit,
including any difficulties encountered.



Review the annual financial statements, and consider whether they are complete,
consistent with information known to committee members, and reflect appropriate
accounting principles.



Review other sections of the annual report and related regulatory filings before
release and consider the accuracy and completeness of the information.



Review with management and the external auditors all matters required to be
communicated to the committee under generally accepted auditing Standards.



Understand how management develops interim financial information, and the
nature and extent of internal and external auditor involvement.



Review interim financial reports with management and the external auditors before
filing with regulators, and consider whether they are complete and consistent with
the information known to committee members.
Internal Control



Consider the effectiveness of the company's internal control system, including
information technology security and control.



Understand the scope of internal and external auditors' review of internal control
over financial reporting, and obtain reports on significant findings and
recommendations, together with management's responses.

43

Internal Audit



Review with management and the chief audit executive the charter, activities,
staffing, and organizational structure of the internal audit function.



Have final authority to review and approve the annual audit plan and all major
changes to the plan.



Ensure there are no unjustified restrictions or limitations, and review and concur in
the appointment, replacement, or dismissal of the chief audit executive.



At least once per year, review the performance of the CAE and concur with the
annual compensation and salary adjustment.



Review the effectiveness of the internal audit function, including compliance with
The Institute of Internal Auditors' International Standards for the Professional
Practice of Internal Auditing.



On a regular basis, meet separately with the chief audit executive to discuss any
matters that the committee or internal audit believes should be discussed privately.

External Audit



Review the external auditors' proposed audit scope and approach, including
coordination of audit effort with internal audit.



Review the performance of the external auditors, and exercise final approval on the
appointment or discharge of the auditors.



Review and confirm the independence of the external auditors by obtaining
statements from the auditors on relationships between the auditors and the
company, including non-audit services, and discussing the relationships with the
auditors.



On a regular basis, meet separately with the external auditors to discuss any
matters that the committee or auditors believe should be discussed privately.

44

Compliance



Review the effectiveness of the system for monitoring compliance with laws and
regulations and the results of management's investigation and follow-up (including
disciplinary action) of any instances of noncompliance.



Review the findings of any examinations by regulatory agencies, and any auditor
observations.



Review the process for communicating the code of conduct to company personnel,
and for monitoring compliance therewith.



Obtain regular updates from management and company legal counsel regarding
compliance matters.
Reporting Responsibilities



Regularly report to the board of directors about committee activities, issues, and
related recommendations.



Provide an open avenue of communication between internal audit, the external
auditors, and the board of directors.



Report annually to the shareholders, describing the committee's composition,
responsibilities and how they were discharged, and any other information required
by rule, including approval of non-audit services.



Review any other reports the company issues that relate to committee
responsibilities.
Other Responsibilities



Perform other activities related to this charter as requested by the board of
directors.



Institute and oversee special investigations as needed.

45



Review and assess the adequacy of the committee charter annually, requesting
board approval for proposed changes, and ensure appropriate disclosure as may be
required by law or regulation.



Confirm annually that all responsibilities outlined in this charter have been carried
out.



Evaluate the committee's and individual members' performance on a regular basis.

The report should contain all matters relevant to the committee’s role and
responsibilities including:


assessment of whether external reporting is consistent with committee
members’ information and knowledge and is adequate for shareholder needs



assessment of the management processes supporting external reporting



procedures for the selection and appointment of the external auditor and for the
rotation of external audit engagement partners



recommendations for the appointment or removal of an auditor



assessment of the performance and independence of the external auditors and
whether the audit committee is satisfied that independence of this function has
been maintained having regard to the provision of non – audit services



assessment of the performance and objectivity of the internal audit function



the results of review of risk management and internal compliance and control
systems. Principle 7 provides further guidance on this matter

Source: Farrar (2001 pp. 369-371)
2.13 ROLE OF REMUNERATION COMMITTEE
The role of the remuneration committee is to set and review salary packages for
executive and non-executive directors as well as executive staff. The committee will
generally review also the makeup and content of the salaries including base salaries,
options and performance bonuses.
As Farrar (2001) p.373 states:
The composition of the remuneration committee should:

46



Consist of a minimum of three members, the majority being independent
directors



Be chaired by an independent director

The remuneration committee should have a formal charter that clearly sets out its role
and responsibilities, composition, structure and membership requirements.
The responsibilities of the remuneration committee should include a review of the
recommendations to the board on:


Executive Remuneration and incentive policies



The Remuneration packages of senior management



The company’s recruitment, retention and termination policies and procedures
for senior management



Incentive schemes



Superannuation arrangements



The remuneration framework for directors

The ASX Best Practice Recommendation 9.2 provides that the board should establish a
remuneration committee.
Source: Farrar (2001 p.373)
2.14 ROLE OF THE NOMINATION COMMITTEE
The role of the nomination committee is to review the performance of nomination of
new and existing board members as to suitability, performance and eligibility.

The Cadbury Report (1992) paras 4.15 and 4.30 recommended:
Given the importance of their distinctive contribution, non – executive directors should
be selected with the same impartiality and care as senior executives. We recommend

47

that their appointment should be a formal matter for the board as a whole and that
there should be a formal selection process that will reinforce the independence of non
– executive directors and make it evident that they have been appointed on merit and
not through any form of patronage
ASX Recommendation 2.4 provides that the board should establish a nomination
committee, the commentary and guidance states as follows:
Purpose of the committee:
Particularly in larger companies, a nomination committee can be a more efficient
mechanism for the detailed examination of selection and appointment practices
meeting the needs of the company. The existence of a nomination committee should not
be seen as implying a fragmentation or diminution of the responsibilities of the board
as a whole. It is recognized that for smaller boards, the same efficiencies may not be
apparent from a formal committee structure.
Composition of Nomination Committee
The Nomination Committee should:


consist of a minimum of three members, the majority being independent
directors



be chaired by the chairperson of the board or an independent director
Charter

The nomination should have a charter that clearly sets out its role and responsibilities,
composition, structure and membership requirements
Responsibilities
Responsibilities of the committee should include:


assessment of the necessary and desirable competencies of board members

48



review of board succession plans



evaluation of the boards performance



recommendations for the removal and appointment of directors

The nomination committee should consider developing and implementing a plan for
identifying, assessing and enhancing director competencies.
The nomination committee should also consider whether succession plans are in place
to maintain an appropriate balance of skills, experience and expertise of the board.
The 1998 Statement on Corporate Governance from the UK funds management group
Hermes, recommended that:


The nomination committee should comprise a minimum of three directors, a
majority of whom should be independent non – executive directors.
Membership of the committee should be disclosed in the annual report



The chairperson of the company and the senior independent non – executive
director should always be members of the committee



The nomination committee should be formally constituted as a subcommittee
of the main board who it is answerable and to whom it should report. It should
be given written terms of reference which deal adequately with its membership,
authority and duties



The chairman of the remuneration committee should normally be a fully
independent non – executive director



Hermes recommends that the nomination committee be responsible, after
consultation with other directors, for finalizing the candidate specification for
all board appointments and for approving the process by which suitable
candidates are identified and short listed, including choosing a third part
advisor where appropriate. Confirmation of the appointment should be the
responsibility of the board as a whole



The nomination committee should ensure that all board appointees undergo an
appropriate induction programme

Source: Farrar (2001 pp. 371-372)

49

2.15 INDUSTRY SECTORS

Within the ASX companies are divided also into defined sectors, these sectors being:
TABLE 2.1 INDUSTRY SECTORS
Sector Category

Index

Consumer Discretionary 2,220.0
Consumer Staples
5,967.5
Energy
11,741.1
Financials
5,628.3
Financial-x-Property Trusts 5,838.8
Health Care
6,166.6
Industrials
5,429.8
Information Technology
442.2
Materials
9,466.0
Property Trusts
1,880.8
Telecommunication Services 1,450.9
Utilities
5,569.0

Movement
-26.1
-77.2
-217.0
-67.5
-75.2
-125.0
-60.6
-7.1
-135.4
-16.4
-12.5
-23.9

Source: ASX Updated Wed 18 Jan 06, 01.26 PM Sydney

2.16 DISCLOSURE REQUIREMENTS
The ASX disclosure requirement states that a listed disclosing entity has obligations
for continuous disclosure under s 1001A of the Corporations Act (2001).
Continuous disclosure required under chapter three of the ASX Listing Rules provides
that ‘Once an entity becomes or is aware of any information concerning it that a
reasonable person would expect to have a material effect on the price or value of the
entities securities, the entity must immediately tell ASX that information.
Periodic disclosure is required under chapter four of the ASX Listing Rules provides
that a company that is required by the act to lodge accounts with ASIC must also give
those accounts to the ASX no later than the time they were lodged with the ASIC.

50

2.17 HISTORY OF THE CORPORATIONS ACT
TABLE 2.2 HISTORY OF THE CORPORATIONS ACT
Period

Stage of Development

1892

The Introduction of separate company
legislation for each state, based on the English
Companies Act of (1862)

1961

The development of the uniform Companies
Act

1981

The introduction of the co-operative scheme
legislation

1991

The commencement of Corporations Law

2001

The Commencement of the Corporations Act

Source: Commercial Applications of Company Law, P Hanrahan, I Ramsay, G Stapleton,
Edition 2002, p. 2

2.18 FLOW OF ACTIVITY
Business relationships like many relationships can be often complex and contentious.
The flow of activity chart outlines a variety of these relationships, which is not seen as
exhaustive yet comprehensive. As can be observed there are actual / potential
relationships. To examine the relationships in detail requires vast amounts of thought
and reflection to logically and grammatically trace these relations through a logical
path. There are some relationships that are readily transferable to the business the
environment, while other relationships are not so obvious and need to be analysed in
detail for logic, reason and applicably to the business environment. By tracing out
relationships, in a horizontal, vertical and diagonal directions there are a multitude of
paths that begin to emerge. Question to be asked, is why we need to examine these
relationships? What are the advantages and are there disadvantages to existing,
perceived or possible linkages? Are there improvements to be made to corporate
governance, corporate reporting, measurement, disclosure and corporate performance?
There are as previously mentioned studies and research that have already identified,
explored, characterized and labelled some of the integral theories that have emerged

51

and been built on by academics and business over many years. Berle and Means
(1932), pioneered agency theory and afterwards, Jensen and Meckling (1976).
Subsequently as a natural progression, there is stakeholder theory. Characterisation of
associations of key people, authorities and relationships is seen as fundamental to not
only understanding the flow of information, but to ideally implement overall
improvements through innovation which may potentially emerge from such
associations. To make an informed judgement and decision, the most optimal path to
funnel decision-making process is crucial to ensure the correct decision outcome is
attained. Likened to using any familiar roadmap if the wrong the path is taken, the final
destination may not be the most direct route or may not be reached at all, i.e. the
direction chosen may be totally incorrect. The use of analogies can be useful in
outlining, defining and describing a concept, and also are invaluable in functional
application of such concepts. It is useful to now explore and examine in detail, a
selection of such associations / relationships.
Salter & Niswander (1995 pp. 379-397) also conducted studies similar to Eddie in the
area of the application of Hostede’s national culture and Gray’s accounting sub
cultures. Salter & Niswander as stated, there paper attempts to test the theory
developed by Gray (1998) linking accounting values and systems with Hofstede’s
(1980) cultural constructs. As further stated based on data from 29 countries, it was
found that while Gray’s (1988) model has statistically significant explanatory power, it
is best at explaining extant professional and regulatory structures from a cultural base.
The paper further found that both the development of financial markets and levels of
taxation enhance the explanations offered by Gray (1988). Salter & Niswander’s paper
generally discussed the same areas and so therefore not a great deal of point re
discussing the same issues again. What is worth of mention though is the conclusions
arrived at by Salter & Niswander. As discussed by Salter & Niswander; Gray appears
to have provided a workable theory to explain cross-national differences in accounting
structure and practice which is particularly strong in explaining differential financial
reporting practices. From an international business theory perspective, Gray (1988) has
given additional credence to the view that culture is a building block of cross – cultural
differences in business practice and performance across nations.

52

Corporate Reporting and Levels of Disclosure
Corporate reporting is largely a matter of transparency, by the Chairperson and CEO
who are essentially responsible for the correct and accurate production of the
company’s annual report which is presented to shareholders at the company’s Annual
General Meeting and later for public presentation either by request or more frequently
in these times can be downloaded from the company’s website, usually found under
investor information or reports. Transparency is highlighted by Gray (1988), and
defined as an accounting subculture as outlined by (Eddie) (2005a) being the extent of
information contained in corporate annual reports and other disclosures to those
outside the corporation. As Eddie further states, the secrecy subculture value is
primarily concerned with disclosure. Eddie further argues that secrecy would also
appear to be associated with conservatism in that both elements would be consistent
with a cautious approach to accounting. The degree of disclosure in a society would
also be reinforced by the relative development of the securities markets, the extent of
equity ownership and the attitudes of management towards voluntarily disclosing
accounting information. Eddie states, the relationship of the secrecy verses
transparency accounting subcultural value to the four national cultural values, was
argued by Gray (1988). First it could be expected that in societies with strong
uncertainty avoidance, i.e. measures the degree of ‘tolerance to ambiguity’ within a
society, that the subcultural value of secrecy would be predominant because of the
desire to restrict information disclosure and accordingly increase the level of societal
security. Countries which exhibit low levels of uncertainty avoidance display among
other things weaker nationalism, a relativist orientation to knowledge and a flexible
managerial style in organisations. Countries with high levels of uncertainty avoidance
display among other things, stronger levels of nationalism, an orientation toward truth
and a task orientation to management within organisations. Eddie (2005a) displays
Hofstede (1991) rankings in Table 2 p.23 and shows Australia as an Index IND (51)
and Ranking RAN (37) which indicates that Australia is a medium level uncertainty
avoidance country falling in between the above outer limits as defined.
Eddie also states that in societies with power distance it could be expected that greater
emphasis would be placed on the accounting subcultural value of secrecy because this
would ensure greater social control by the power elite to the restriction in the quantity
of disclosed information. As Hofstede (1984) states, power distance is the way in

53

which a society manages inequality. It is defined as the extent to which members of
society tolerate inequality of power within institutions and organisations. As Eddie
states, low power distance in a society be endowed by the emergence of pluralist
political systems, a relative equal distribution of wealth and a dominance of non –
hierarchical organisational and institutional structures. High power distance countries
tend to have autocratic political regimes, an unequal distribution of wealth and
hierarchical and centralised organisational and institutional structures. Eddie (2005a)
displays Hofstede (1991) rankings in Table 2 p.23 and shows Australia as an Index
IND (36) and Ranking RAN (36) which indicates that Australia is a medium level
power distance country falling in between the above outer limits as defined. In the case
of individualism it could be expected as stated by Eddie that secrecy would be
negatively associated with this national cultural value dimension because of the
increased demand for additional disclosures by an individualist orientated society. As
defined by Hofstede (1984) Individualism verses collectivism measures the
relationship between an individual and the collective in a given society. In societies
with high levels of individualism, the members of the society are expected to look after
themselves and their immediate family. Societies with low levels of individualism, or
alternatively high levels of collectivism, members of the society are strongly integrated
from birth into cohesive ‘in-groups’ which continue to protect and provide for the
members throughout their lives. Eddie (2005a) displays Hofstede (1991) rankings in
Table 2 p.23 and shows Australia as an Index IND (90) and Ranking RAN (2) which
indicates that Australia is a high level individualism country falling in between the
above outer limits as defined. As Eddie goes on to state, that societies that exhibit
greater feminism would be expected to be more open and caring, accordingly the
accounting subcultural value of transparency would be consistent with such societies.
As defined by Hofstede (1984) and outlined by Eddie (2005a) Masculinity verses
femininity as distinguishing societies according to their attitudes towards such ideas as
‘assertiveness’, ‘nurturing’, ‘modesty’, ‘aggressiveness’, ‘material orientation’ and
‘caring for the weak’. As further stated societies with a high level of femininity have
limited occupational segregation based on gender, a less achievement orientated
reward system and organisations are driven less by conflict. Societies with a high level
of masculinity, the reward system are based on achievement, occupations are
determined by gender and organisations are faced with greater levels of conflict. Eddie
(2005a) displays Hofstede (1991) rankings in Table 2 p.23 and shows Australia as an

54

Index IND (61) and Ranking RAN (16) which indicates that Australia is a reasonable
high level Masculine country falling in between the above outer limits as defined.
Eddie (2005a) Table 1: p.18 draws a positive association between Long Term
Orientation and secrecy. As defined by Hofstede and Bond (1998, p.17) and outlined
by Eddie (2005a p.9) Long Term Orientation as a ‘long term verses a short term
orientation in life’ by Hofstede (1991, p.164). A society with a high long term
orientation would reflect Confucian values such as; ‘persistence’, ‘ordering
relationships by status and observing this order’, ‘thrift’ and having a sense of shame.
A society with a short term orientation would reflect values such as; ‘personal
steadiness and stability’, respect for tradition’, ‘reciprocation of greetings’, ‘favours’
and ‘gifts’. Eddie (2005a) displays Hofstede (1991) rankings in Table 2 p.23 and
shows Australia as an Index IND (31) and Ranking RAN (15) which indicates that
Australia is a short – medium term orientation country falling in between the above
outer limits as defined.
Involvement of Key Board Members and Individual Directors in Corporate
Reporting and Decision Making
As Judge, W.Q., JR. and Zeithaml, C.P., (1992, pp. 766-794) state; the level of a board
of directors’ involvement in strategic decisions can be viewed as an institutional
response or as a strategic adaptation to external pressures for greater board
involvement. Increasingly, the pressure for greater accountability in corporate decision
making has focused on board involvement in the strategic decision making process.
Power (1987) observed that institutional investors are pressuring boards to challenge
managements’ strategic leadership. As well Galen (1989) reported that the courts are
increasingly supporting shareholder efforts to get boards more involved. Furthermore
Weidenbaum (1985) argued that the best defence against corporate raiders is increased
board involvement in the strategic decision process. Other academics such as Heidrick
and Struggles (1990), Dobrynski (1989: 66), Worthy (1984), Lorsch (1989), Whisler
(1984), Patton and Baker (1987), Child (1972) and Meyer and Rowan (1977) all
maintain support for greater involvement in strategic leadership and greater
involvement in management decision making at that level of the organisation. As
Judge and Zeithaml (1992) state; external pressure for greater board involvement is
being exerted by predominately institutional shareholders.

55

As Zahra and Pearce (1989) argue perhaps the most controversial issue surrounding
board strategic role concerns board involvement and its impact on the financial
performance of organisations. As Baysinger and Hoskisson (1990) state; the primary
basis for this argument is that increased board involvement forces managers to check
their assumptions and do their homework before advancing strategic proposals. In
addition outside directors bring objectivity to the decision making process that can
help to challenge narrow thinking, escalating commitment and weak analysis. It is
further suggested that there is a positive relationship between board involvement and
the financial performance of an organisation.
Involvement of Key Board Members and Individual Directors in Corporate
Reporting and the Audit Function
As Boulton (1978) quotes Nader et al (1976) as stating;
If corporate governance is to be reformed, it must begin by returning the board to its
traditional role. The board should serve as an internal auditor of the corporation,
responsible for constraining executive management from violations of law and breach
of trust. Like a rival branch of government, the boards function must be defined
separate from operating management. Rather than pretending directors’ can manage
the corporation, the board’s role as disciplinarian should be precisely described.
As Boulton (1978) outlines, some of the areas where board involvement should be
increased are:
1. Those matters for which the board has explicit legal responsibility for approval.
These responsibilities may be described in bylaws, articles of incorporation, or
in the laws governing corporations.
2. Basic financial statements and reports provided to the board so that it may
monitor the health of the corporation and its management performance and
provide that information to stockholders of the firm
3. Establishment or revisions of objectives and policies which provide the
standards by which the health and performance of the corporation can be
evaluated and which provide the guidelines by which operations are carried
out.

56

4. Strategic operating reviews and approvals, this allows the board to review the
operations and plans for achieving its objectives through its investment plans
and structures
5. Personnel and organisational reviews and approvals, the nature of the
organisations systems for developing and monitoring individuals to carry out
the strategic and operating plans of the corporation in an efficient manner
6. External and environmental matters, the nature of the environment in which the
corporation plans to carry out its activities and which may have a significant
impact on its abilities to carry out those activities
The board as part of its over all function, will have interaction with groups and
individuals such as:
-

The Audit Committee (If such has been established), although as per
recommendation 4.3 of the ASX CGC Principles and Best Practice
Recommendations, it is advised that an organisation should establish such a
committee and is mandated if companies within the S&P/ASX All Ordinaries
Index are subject to ASX Listing Rule 12.7

-

External auditors

-

Internal auditors

-

External stakeholders (i.e. suppliers, debenture holders and joint venture
partners)

-

Internal stakeholders (employees)

-

Non institutional shareholders

-

Institutional shareholders

As noted Figure 2.2, graphically depicts these associations and taking the association
to include environmental and social obligations. A corporation is a vital link between
all affected parties, when analysed there is very little and indeed quite possibly nothing
that affects our daily lives that does not involve a corporation, association, body,
organisation, government and unlimited types of entities in one form or another. From
our experiences these diverse entities in whatever mode are an integral and essential
collaboration with our own existence. These entities may be local, regional,

57

domestic/national and global. Global organisations in particular are linked into these
associations, not only for the agency theory profit motive, the stakeholder obligation
requirement, the property rights requirement, but also legislatively and statutory
regimes at all levels of government, including globally. Environmental and social
concerns and obligations of the corporation are mandated as well at all above
mentioned levels, through ISO and GRI standards as well EPA and World Heritage
Act.

58

Low
Disclosure
Levels

Corporate
Reporting

High
Disclosure
Levels

NonExecutive
Director

Chairman/
CEO

Executive
Director

External
Auditor

Board of
Directors

Internal
Auditor

External
Stakeholder

Audit
Committee

Internal
Stakeholder

Non
Institutional
Share Holder

Share
Holder
Groups

Institutional
Shareholder

Medium
Size
Company

Government

Large
Size
Company

Recession

Economy

Growth

Deficit

Domestic
Trade/
Capital

Surplus

Deficit

Overseas
Trade/
Capital

Surplus

59

Volatile
Dollar

Dollar
Value

Non Volatile
Dollar

Control
Slow Down

Financial
Regulation

Control
Growth

Negative
Impact/
Externality

International
Influence

Positive
Impact/
Externality

FIGURE 2.2 FLOW OF ACTIVITY FLOW CHART
Source: Peter. N Rampling (2006)

60

2.19 ECONOMIC BENEFITS AND COSTS OF REGULATION
Economic consequences are concerned with the distribution of costs and benefits
across society. It is difficult to identify and measure all the costs and benefits of
financial reporting. Identifying the distribution of these consequences over the
community is an even more formidable task.
Regulation of general purpose reporting is now a reality and could be argued that the
benefits include:
Improved credibility of financial reporting in general and hence greater



confidence and participation in capital markets
A reduction in costs using information in general purpose financial reports



flowing from increased uniformity of accounting policy choices among
reporting entities
Reduced contracting and monitoring costs as principals and agents have a



uniform set of accounting principles and standards as a starting point for
negotiating the terms of bonding and monitoring contracts
Better investment decisions as a consequence of improved information set



available to decision makers, it is usually assumed that this will favourably
affect resource allocation and the rate of capital formation.
These alleged benefits are both direct and indirect; very little is known about their
magnitude and distribution. The direct costs of regulation generally include out of
pocket expenses.
There are also costs associated with regulation, which include:


Developing, promulgating and enforcing reporting standards



Collecting and processing information in order to prepare financial reports
that comply with disclosure requirements



Auditing and disseminating financial reports



Information search, analysis and the use by decision makers; and



Negotiating bonding and monitoring covenants, and renegotiating contracts
when accounting standards are changed.

61

In addition to the direct costs of regulation noted above, regulation also brings hidden
or indirect costs that can have equally powerful effects on wealth distributions. Indirect
costs of regulation are said to include competitive disadvantage costs and the
consequences of uneconomic decisions that are forced on managers by particular
reporting requirements. Certified Practicing Accountants, (2006 p.3.29), “CPA108
Reporting and Financial Practice”
2.20 SUMMARY
The focus of chapter two is to discuss the studies that have influenced Corporate
Governance development and disclosure compliance in Australia. Overall generally the
development of Australian corporate governance principles and guidelines developed
by the ASX have been influenced by international studies bought on by high profile
corporate collapses as well as here in Australia, combined with the need and pressure
on boards to better manage companies and perform at greater levels, which is required
by internal and external stakeholders. Alongside stakeholder requirements is the
incentive to do better by linking performance bonuses with the performance of the
company. The chapter explored various mechanisms in place as to whether there is
sufficient self regulation within the Australian Economic market or whether there is a
greater need for increased statutory regulation. Clearly there needs to be a balance of
both, but finding the correct balance to allow the market to operate freely without
excess government intervention is the challenge.
Outlined is a detailed account of Australian business, what the influences, impacts,
requirements of Australian companies. The issues and areas discussed are essential
grounding to corporate governance and apply equally to both institutionally and non –
institutionally controlled entities. The author believes this background essential for
progression into further and much deeper analysis of these two similar but in many
ways quite diverse corporate regimes.
The development of regulation and code is influenced by theory and ongoing changes
and fine tuning which is discussed in chapter three.

62

CHAPTER 3
NATURE OF CORPORATE GOVERNANCE DISCLOSURE PRACTICE AND
THEORIES OF DISCLOSURE

63

3.0 INTRODUCTION
The focus of chapter three is the framework of corporate disclosure that has evolved
and operates in Australia.
There is no doubt that in recent years the disclosure of information by corporations has
received much attention. This may be attributed partly to higher levels of
accountability required resulting from the increase in the incidences of fraud, changes
in the general economic and financial conditions and the immense complexity of
corporate groups in existence today (Cook and Deakin,1989). With recent collapses in
Australia; regulators have become very aware of the need for tighter regulation and
increased disclosure by organisational boards. To facilitate this legislation was passed
in Australia, The ASX Corporate Governance Council Principles and Regulations
(2003), which have already been mentioned before will be discussed through, out this
paper. In chapter three, concepts will be more fully examined as to the effect on
variables used in this study. Chapter three introduces the concept and role of
information disclosure, while moving on to discuss anchor concepts that essentially
corporate is built around and in many respects takes its origin from. It is also vastly
important that understanding of the environment that firms are operating in whether
that environment is national or international, also discusses the Australian financial
environment, the domestic, global research and influences that have and are shaping
the sphere that Australian firms interact with and contribute to. Background and
contributions to any field of endeavour and research is essential and corporate
governance is no exception, hence an extensive observation into the background and
contributions both domestically and globally are carried out to determine this. Finally
chapter three looks at the shareholder impact within a firm, which in various ways
affect corporate governance and / or the financial performance of a firm.
3.1 CONCEPT OF CORPORATE INFORMATION DISCLOSURE
To define corporate information disclosure it is required to look at the separate
wordings that in isolation.
Corporate can be defined as: “That vehicle or organisation which is defined as per the
Corporations Act (2001) Pt. 1.2 (20).”

64

Information as quoted by the Living Webster Encyclopedic Dictionary of the English
Language:
“News or Intelligence communicated by word or in writing: facts or data: knowledge
derived from reading or instruction, or gathered in any way.”
Disclosure as quoted by the Living Webster Encyclopedic Dictionary of the English
Language:
“The act of making known or revealing what was secret; that, which is disclosed or
made known.”
3.2 ROLE OF CORPORATE INFORMATION DISCLOSURE
The role of corporate information disclosure is to divulge and transfer relevant
information to internal and external stakeholders to allow an informed decision to be
made regarding the corporation. Corporations use annual reports as a tool to expedite
their duty of disclosure to interested stakeholders and the market as a whole. Corporate
information disclosure as outlined in the ASX CGC principles, recommendations and
guidelines and the Sarbanes Oxley Act (2002) are designed to have disclosed the
maximum amount of information to allow informed decision making and at the same
time not putting the corporation in the path of hostile takeovers by being mandated to
disclose market sensitive information, although the former is voluntary based
disclosure compliance as where the latter is prescriptive based.
3.3 DISCLOSURE PROBLEMS
The problems of disclosure are that corporations will normally only disclose
information that will convey good signals to stakeholders and the market in general
and attempt to suppress bad signals. Jensen and Meckling (1976) state, “that in a
classic shareholder and non – owner manager agency relationship in which principals
delegate decision making powers to others acting as agents to make decisions on their
behalf. The agency problem is that agents will not have exactly the same objectives
and motivation as principals, will not always act in the interests of principals and will
be tempted to divert resources away from their principals to themselves”. Another
aspect of disclosure problems is that of information asymmetries as outlined by
Waterman and Meier (1998) stating that in the case of large organisations, managers

65

may well have information that shareholders do not and may use this to their
advantage, although it may not always be the case that agents know more than
principals. Berle and Means (1932) observed that ownership and control in large
corporations were often separated and inquired whether this had organisational and
public policy ramifications.
3.4 DISCLOSURE THEORIES
Theory of disclosure revolves around how much will corporate boards disclose in a
realm of voluntary disclosure compliance. Voluntary disclosure compliance gives
choices and determination of what can be gained by increased disclosure and what can
be lost. Disclosure theory suggests that statements by companies result from complex
processes that mask the actual corporate attributes or actions being disclosed Gibbins
et al. (1990).
3.5 AGENCY THEORY
As Adam Smith (1776) stated:
The Directors of such [joint – stock] companies, however, being the managers rather
of other people’s money than of their own, it cannot be well expected, that they should
watch over it with the same anxious vigilance which with the partners in a private
copartnery frequently watch over their own. Like the stewards of a rich man, they are
apt to consider attention to small matters as not their master’s honour, and very easily
give themselves a dispensation from having it. Negligence and profusion, therefore,
must always prevail, more or less, in the management of the affairs of such a company.

Berle and Means (1932) observed that ownership and control in large corporations
were often separated and inquired whether this had organisational and public policy
ramifications. This separation of ownership and control results, according to Jensen
and Meckling (1976), in a classic principal-agent relationship between shareholders
and non-owner managers. Jensen and Meckling (1976) defined an agency relationship
as one in which principals delegate decision-making power to others (agents) who are

66

charged with acting on their behalf. Following on from the work of Alchian and
Demsetz (1972) pp.777 - 795 clear manifestations of agency costs in large
organisations are shirking and the consumption of perquisites: “shirks” and “perks”.
According to Jensen and Meckling these arise whenever managers have less than a 100
percent stake in the enterprise at which point a hundred percent of an extra dollar of
shirk or perk is worth more than their share in an extra dollar of profit.
Jensen and Meckling go on to define agency costs as the sum of:
1) the montoring expenditures by the principal
2) the bonding expenditures by the agent
3) the residual loss
with the monitoring costs being defined as those costs incurred by the principal
monitoring the agent in performing duties as expected by the agency agreement; the
bonding expenditure being the payoff amount and incentives; the residual loss being
the excess of cash payments over cash receipts.
3.6 STAKEHOLDER THEORY
Stakeholder theory takes into consideration a wider group of constituents other than
shareholders. The wider stakeholder group includes; employees, providers of credit,
customers, suppliers, government and the local community. As Mallin (2004) notes
that shareholders and stakeholders may favour different corporate governance
structures and monitoring mechanisms. It can be seen for example in the corporate
governance structures and monitoring systems of Anglo-American models with
emphasis on shareholder value and a board comprised of executive and non-executive
directors elected by shareholders. In comparison is the German Model whereby certain
stakeholder groups such as employees, have a right enshrined in law for their
representatives to sit on the supervisory board alongside directors. Jensen (2001) states
that traditional stakeholder theory argues that managers of a firm should take account
of the interests of all stakeholders in a firm, but as stated as well, theorists refuse to say
how the tradeoffs against the interests of each stakeholder groups might be made,
There are no defined measureable objectives and this leaves managers unaccountable

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for their actions. It is considered that more emphasis in today’s modern globalised
society, stakeholder theory is a more relevant theory than that of agency theory which
was considered revolutionary when developed by Berle and Means in 1932 and later
wriiten about in detail by Jensen and Meckling 1976. This view is confirmed by
authors Mahoney et al.(2004), in a paper entitled ‘Towards a Property Rights
Foundation for a Stakeholder Theory of the Firm’. This paper suggests that due to the
changing nature of the firm in today’s business world, viewing shareholders as the sole
claimants is an increasingly tenuous description of the actual relationships among a
firms various stakeholders. As further stated, a shareholders wealth perspective is
increasingly unsatisfactory for the purpose of accurately answering the two
fundamental questions concerning the theory of the firm: that of economic value
creation and the distribution of that economic value. As an extension of stakeholder
theory, the development of a property rights theory posits to extend a stakeholder
beyond a shareholder wealth perspective. Shareholder wealth perspective focuses on
whether resources are valuable, rare and non – sustainable (the VRIN criteria). Barney
(1991) relates to achieving sustainable competitive advantage, typically from a
shareholder wealth perspective. However as the said paper states, a stakeholder
perspective indicates that it is no longer tenable to regard shareholders as the only
residual claimants, who are defined as persons or collectives whose relationship to the
firm gives rise to a significant residual interest in the firms success or failure.
3.7 PROPERTY RIGHTS
Property rights are defined as any sanctioned behavioural relations among decision
makers in the use of potentially valuable resources: as further stated such sanctioned
behaviours allow people the right to use resources within the class of non – prohibited
uses. North (1990) extends the definition of property rights to both the legal aspects
and social conventions that govern business behaviour, such as corporate culture and
reputation. Libecap (1989) states that private ownership of resources may involve a
variety of property rights, including the right to exclude non – owners from access, the
right to appropriate the stream of economic rents from the use of and investments in
the resource, and the rights to sell or otherwise transfer the resources to others. Coase
(1960) stated that that it is useful to think of resources as the ‘bundle of rights’ rather
than physical entities. Therefore from the property rights perspective, resources that a

68

firm owns are not the physical resources but rather are the property rights. As stated by
the Mahoney, J., Mahoney, J. and Asher C.C.,(2004) paper, examines three reasons
why a new property rights theory of the firm is now needed. Firstly, changes in the
reconstructed conceptualisation of the firm is needed because the nature of the firm in
the world of management practice is changing, especially in a business environment
with increasing importance placed on intellectual property rights and knowledge based
resources and capabilities. Secondly, a new property rights theory of the firm is that
changes in the nature of the firm motivate a new conceptualisation of the firm from
which economic creation emerges. As stated by Chandler (1990), business enterprises
that historically could be usefully understood in large measure as leveraging physical
assets to achieve both economies of scale and economies of scope are now increasingly
dominated by firm – specific human and organisational capital. As Williamson (1996),
states both human and organisational capital are now emerging as the most crucial
organisational assets, and such fundamental economic changes arguably call for
changes in governance in terms of the constraints on management, compensation and /
or board representation, also the need to address more accurately the fundamental
question of economic valuation in a business world where the economic maximisation
of a single residual claimant is becoming increasingly tenuous.
3.8 TRANSACTION COST ECONOMICS
As Williamson (1975,1984) states Transaction Cost Economics (TCE) is often viewed
as closely related to agency theory. TCE views the firm as a nexus of contracts. Coase
(1937) who is influential in TCE states:
The operation of a market costs something and by forming an organisation and
allowing some authority (an ‘entrepreneur’) to direct the resources, certain
marketing costs are saved. The entreprenuer has to carry out this fuction at
less cost, taking into account the fact that he may get factors of production at a
lower price than the market transaction which he/she supercedes.
This implies that there are certain economic benefits to the firm to undertake
transactions internally rather than externally. Implicitly as the firm becomes larger, the
transactions it undertakes will expand up to the point where it becomes more efficient
to undertake transactions externally.

69

Coase (1960) therefore posits the theory that firms may become less efficient the larger
a firm becomes.

70

FIGURE 3.1 MAIN THEORIES INFLUENCING THE DEVELOPMENT OF
CORPORATE GOVERNANCE

Agency Theory

Corporate Governance

Stakeholder
Theory

Transaction Cost
Economics

Main theories influencing the development of corporate
governance

Source: Mallin (2004): Corporate Governance: p.15

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FIGURE 3.2 THE CORPORATION AND ITS STAKEHOLDERS

Shareholders

Employees

Government

Environmental
Groups

Corporation

Local
Communities

Providers of
Credit

Customers

Suppliers

The Corporation and its
stakeholders

Source: Mallin (2004): Corporate Governance: p. 44

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3.9 SEPARATION OF OWNERSHIP AND CONTROL
Fama and Jensen (1983) being pioneers of the concept of Separation of Ownership and
Control have outlined in the article entitled ‘Separation of Ownership and Control’ the
essential elements of Agency Theory and Stake Holder Theory as discussed above.
The article begins by highlighting the concept of residual claims and the relationship to
the misaligned goals, aspirations and priorities of managers and shareholders. Fama
and Jensen refer to an organisation as a nexus of contracts, written and unwritten,
among owners of factors of production and customers. As stated these contracts or
internal ‘rules of the game’ specify the rights of each agent in the organisation,
performance criteria on which agents are evaluated and the payoff functions they face.
As Fama and Jensen further state the contract structures of most organisational forms
limit the risks undertaken by most agents by specifying either fixed promised payoffs
or incentive payoffs tied to specific measures of performance, the link to the ASX
CGC Principles and Guidelines is noted, (i.e. ASX CGC Recommendation 9.1). The
concept of residual claims/claimants/risk is referred to as the residual being the
difference between inflows of resources and outflows of promised payments to agents,
the risk is borne by those who contract for the rights to the net cash flows, known as
residual claimants or residual risk bearers. Fama & Jensen refer to non – complex and
complex organisations. Non-complex organisations are those in which the total risk of
net cash flows to be shared in small organisations is generally smaller, as where
complex are larger organisations, where the risk of net cash flows is shared by a larger
organisational base.
Most organisations characterized by separation of decision management from residual
risk bearing are complex in the sense that specific knowledge relevant to different
decisions, knowledge which is costly to transfer across agents, is diffused among
agents at all levels of the organisation. Fama & Jensen make the assertion that it is
given that the optimal organisations in some activities are complex.
Given that specific knowledge in complex organisations is diffused among agents,
diffusion of decision management can reduce costs by delegating the initiation and
implementation of decisions to the agents with valuable relevant knowledge. The
agency problems as stated of diffuse decision management can then be reduced by
separating the management (initiation and implementation) and control (ratification
and monitoring) of decisions.

73

It is further asserted by Fama & Jensen that having many residual claimants has
advantages in large complex organisations because the total risk of cash flows to be
shared is generally large and there are large demands for wealth from residual
claimants to bond the payoffs promised to a wide range of agents and to purchase risky
assets. When there are many residual claimants, it is costly for all to be involved in
decision control and it is efficient for them to delegate decision control.
Almost complete separation and specialization of decision control and residual risk
bearing is common in large open corporations where most diffused residual claimants
are not qualified for the roles in decision making and thus delegate their decision
control rights to other agents. Where residual claimants have no role in decision
control, we expect to observe separation of the management and control of important
decisions at all levels of the organisation.
Separation and diffusion of decision management and decision control, in effect limit
the power of individual decision agents to expropriate the interests of residual
claimants. Diffusion and separation of decision management and control have benefits
because they allow valuable knowledge to be used at the points in the decision process
where it is most relevant. In complex organisations, the benefits of diffuse residual
claims and the benefits of separation of decision functions from residual risk bearing
are generally greater than the agency costs they generate, including the costs of
mechanisms to separate the management and control of decisions.
3.10 FINANCIAL REGULATION IN AUSTRALIA
Financial Regulation in Australia is directly carried out by (four) agencies:


The Australian Prudential Regulation Authority (APRA)



The Australian Securities and Investment Commission (ASIC)



The Reserve Bank of Australia (RBA)



The Australian Treasury
And the coordinating body being the:



The Council of Financial Regulators

74

The Council of Financial Regulators
The Council of Financial Regulators is the coordinating body for Australia’s main
financial regulatory agencies. Its membership is comprised of the Reserve Bank of
Australia, which chairs the Council; the Australian Prudential Regulation Authority
(APRA); the Australian Securities and Investments Commission (ASIC); and the
Australian Treasury. The council functions directly relate to the:


Role and Responsibilities of the financial regulatory bodies



Composition of the Council of Financial Regulators



Co-ordination between Council Members

http://www.rba.gov.au/FinancialSystemStability/AustralianRegulatoryFramework/cfr.
html
Role and Responsibilities
As specified in the council’s charter, the council’s role is to contribute to the efficiency
and effectiveness of financial regulation by providing a high-level forum for cooperation and collaboration among its members. It operates as an informal body in
which members are able to share information and views, discuss regulatory reforms or
issues where responsibilities overlap and, if the need arises, co-ordinate responses to
potential threats to financial stability. The council also has a role in advising the
government on the adequacy of Australia’s financial system architecture in light of
ongoing developments. These arrangements provide a flexible, low-cost approach to
co-ordination among the main financial regulatory agencies. The council is nonstatutory and has no regulatory functions separate from those of its members.

Composition of the Council of Financial Regulators

Membership of the council comprises two representatives – the chief executive and a
senior representative – from each of the four member agencies. The Chairman is the
Governor of the Reserve Bank, and the Reserve Bank provides the Council Secretariat.

75

Co-ordination between Council Members
Australia’s financial regulatory structure includes mechanisms to ensure effective coordination and co-operation between the four council member agencies. The liaison
framework, which is overseen by the council itself, is a multi-tiered one. At the highest
level, there is overlapping board representation: one APRA member has representation
on the Payments System Board of the Reserve Bank; and the Secretary to the Treasury
has a seat on the Reserve Bank Board.
At the operational level, co-operation arrangements have been set out in bilateral
Memoranda of Understanding signed between various members of the Council. The
Memoranda cover matters such as information sharing, prompt notification of any
regulatory decisions likely to impact on the other agency’s area of responsibility, and
consultation arrangements in the event of financial disturbances. They also establish
regular bilateral co-ordination arrangements that aim, among other things, to ensure
close consultation and to avoid overlaps and gaps in regulatory coverage.

FIGURE 3.3 FINANCIAL REGULATORY FLOWCHART

Figure 1: Agencies which have signed
bilateral Memoranda of Understanding

Source: http://www.rba.gov.au

76

The Australian Prudential Regulation Authority (APRA)
APRA is an integrated prudential regulator responsible for deposit-taking institutions
(banks, building societies and credit unions) as well as friendly societies, life and
general insurance and superannuation. APRA is charged with regulating these financial
institutions and for developing administrative practices and procedures (e.g. prudential
standards) to give effect to its regulatory role, in a manner that balances financial
safety and efficiency, competition, contestability and competitive neutrality.
Deposit-taking institutions are regulated by APRA under a single licensing regime.
The Banking Act (1959) gives APRA power to authorise and revoke authorities of
authorised deposit-taking institutions (ADIs), to make prudential standards or issue
enforceable directions, and to inspect ADIs. In addition, the ‘depositor protection’
provisions of the Banking Act (1959) cover ADIs, which are permitted to accept retail
deposits. These provisions provide APRA with the power to act in the interests of
depositors, including the power to appoint a statutory manager to an ADI in difficulty
to take control of the institution.
http:// www.apra.gov.au/

The Australian Securities and Investment Commission (ASIC)

The Australian Securities and Investments Commission (ASIC) administers and
enforces a range of legislative provisions relating to financial markets, financial sector
intermediaries and financial products, including investments, insurance,
superannuation and deposit-taking activities (but not lending). ASIC’s aim is to protect
markets and consumers from manipulation, deception and unfair practices and, more
generally, to promote confident participation in the financial system by investors and
consumers. With this in mind, ASIC seeks to promote honesty and fairness in company
affairs and securities and futures markets through adequate and timely disclosure of
market information. In addition, ASIC:


develops policy and guidance about the laws that it administers;



licenses and monitors compliance by participants in the financial system; and

77


provides comprehensive and accurate information on companies and corporate
activity.

As part of its consumer protection role, ASIC monitors and assesses compliance with
the Code of Banking Practice, the Credit Union Code of Practice, the Building Society
Code of Practice and the Electronic Funds Transfer Code of Practice and supervises a
number of industry-based alternative dispute resolution schemes.
ASIC also implements the provisions of the Financial Services Reform Act (2001),
which introduced a streamlined regulatory regime for market integrity and consumer
protection across the financial services industry. The Act provides for a harmonised
licensing, disclosure and conduct framework for financial service providers, and a
single statutory regime for financial product disclosure. At the same time, the
framework allows for flexible treatment of different financial products where
appropriate (e.g. basic deposit products are subject to less intensive regulation than
more complex investment products).
http:// www.asic.gov.au/
The Reserve Bank of Australia (RBA)
Stability of the financial system is a long-standing responsibility of the Reserve Bank –
a mandate reconfirmed by the Government when it introduced landmark changes to
Australia's financial regulatory structure in July 1998. These included the transfer of
responsibility for the supervision of banks to a new integrated regulator, the Australian
Prudential Regulation Authority (APRA), and the establishment of the Payments
System Board within the Bank.
http:// www.rba.gov.au/
The Australian Treasury



The Department of the Treasury has responsibility for advising the Government
on financial stability issues and for the legislative and regulatory framework
underpinning financial system infrastructure. It provides advice to the
Government on policy processes and reforms that promote a secure financial
system and sound corporate practices remove impediments to competition in

78

product and services markets and safeguard the public interest in matters such
as consumer protection and foreign investment.
http:// www.treasury.gov.au/
3.11 FINANCIAL MARKET DEREGULATION IN AUSTRALIA
The period of deregulation in Australia commenced in the 1980’s comprising two
major aspects; firstly macroeconomic with the major changes being the float of the
dollar and the full implementation of the tender system for selling debt to the public so
that the deficit was financed at market rates.
The second aspect of financial deregulation was directed at financial intermediaries,
mainly banks, with a few to increasing competition. The policy changes were the
abolition of both interest rate controls and credit guidelines, and the entry of foreign
banks.

3.12 THE US / EUROPEAN INFLUENCE ON AND CONTRIBUTION TO
CORPORATE GOVERNANCE
Studies that have been carried out in the US include and to be read in conjunction with
Appendix A:
Beyond Compliance: Building a Governance Culture: The Canadian Institute of
Chartered Accountants (CICA) (2001)
This study focuses on key issues where it is believed that corporate governance can be
improved by encouraging a healthier culture in the board room.
In particular the report focuses on three key issues:


measures that can be taken to strengthen the capacity of the board to engage in
a mature and constructive relationship with management – one that is grounded
in a mutual understanding of respective roles and the ability of the board to act
independently in fulfilling its responsibilities

79



the critical role the board must play in choosing the CEO of the company, in
actively contributing to the company’s strategic direction, approving a strategic
plan and monitoring performance in fulfilling its responsibilities



particular issues that independent directors’ must face in corporations that have
significant shareholders

http://www.cica.ca/multimedia/Download_Library/Research_Guidance/Risk_Manage
ment_Governance/Governance_Eng_Nov26.pdf Corporate Governance (NYSE)
The NYSE website includes a dedicated section, which includes the full text of
Corporate Governance listing standards from the NYSE Listed Company Manual
http:// www.nyse.com/pdfs/finalcorpgovrules.pdf
The Corporate Governance of Listed Companies: A Manual for Investors (CFA
Institute) (2005)
The guide was described by the CFA institute as ‘a comprehensive guide to help
analysts and investors around the world assess a company’s corporate governance
policies and the associated risks they need to consider before making investment
decisions’. The guide also states that it can be used ‘to develop a better understanding
of what investors are looking for in well – governed companies’.
http://www.iasplus.com/resource/0504corpgovmanualpressrel.pdf
Corporate Governance (Business Roundtable) (2002)
The Corporate Governance (Business Roundtable) is an American organisation
described as an association of CEO’s committed to improving public policy. The
Business Roundtable’s task force focuses on issues related to:


Corporate Governance and Responsibilities



Accounting Standards



Press releases and publications



Full text of their Principles of Corporate Governance

80

http://www.businessroundtable.com/newsroom/document.aspx?qs=58B6BF807822B0
F1AD3448522FB51711FCF50C8
Corporate Governance Institute
A website of a US based education and research centre ‘dedicated to the study and
application of corporate governance principles’.
http://www.sdsu.edu/corpgov
Corporate Governance Resources (NASDAQ)
Is a component of the NASDAQ website for collected resources on Corporate
Governance issues for NASDAQ listed companies, including FAQ and NASDAQ
bulletins.
http://www.nasdaq.com/about/Corp_Gov_Summary101002.pdf
European Corporate Governance Institute
The website of the European Corporate Governance Institute (ECGI) aims to provide
‘a focal point for academics working on corporate governance’. This site includes an
impressive archive of library materials, which includes a directory of downloadable
Codes and Principles from across the world arranged by continent, including Canada
and the United States. The directory also lists a selection of international comparative
summaries.
http://www.ecgi.org/
Institute of Chartered Secretaries and Administrators (ICSA)
An International organisation represented in more than 70 countries worldwide. A
number of branches have published International Good Governance Guides
http://www.icsa.org.uk/

81

The New Stock Exchange Report (2002)
The New York Stock Exchange Report recommends ‘new standards and changes in
corporate governance and practices of NYSE – Listed companies’ issued by the
Corporate Accountability and Listing Standards Committee on the NYSE Board of
Directors. The section on ‘Recommendations to Other Institutions’ includes greater
SEC oversight of FASB and US GAAP.
http://fenwick.com/docstore/Publications/Corporate/sec/Corp_Sec_06-07-02.pdf
Restoring Trust (2003)
Restoring Trust is a report by SEC Chairman Richard Breeden. The report lists 78
recommendations to improve corporate governance at MCI (formerly WorldCom).
Richard Breeden suggested that the report should be adopted as corporate governance
model for US companies
http:// www.ecgi.org/codes/code.php?code_id=135
US and German Corporate Governance Rules (KPMG) (2003)
This report is a comparison of Corporate Governance rules in Germany and the United
States.
http://www.icaew.co.uk/librarylinks/index.cfm?AUB=TB2I_86282,MNXI_86282
Sarbanes – Oxley (2002)
The Sarbanes – Oxley Act (2002) is a response by Congress in the US to large high
profile corporate failures. The key areas of SOX are:


The Public Company Accounting Oversight Board (PCAOB)



Auditor Independence



Corporate Responsibility



Enhanced Financial Disclosures



Analyst Conflicts of Interest



Commission Resources and Authority

82



Studies and Reports



Corporate and Criminal Fraud Accountability



White – Collar Crime Penalty Enhancements



Corporate Tax Returns



Corporate Fraud Accountability

http://www.soxlaw.com/
Commission on Public Trust and Private Enterprise (2002)
This study focuses on corporate governance issues in the US and issued a final report
with recommendations on:


Executive Compensation



Corporate Governance



Designing and Enforcing ethical codes of conduct



Shareholder Relations



Improving Accounting and Audit Practices

http://www.ecgi.org/codes/documents/757.pdf
Committee of Sponsoring Organisations (COSO) of the Treadway Commission
(1992 - )
COSO, which describes itself as voluntary private sector organisation which focuses
on:


Improving the quality of financial reporting through business ethics



Effective Internal Controls and Corporate Governance

http:://en.wikipedia.org/wiki/Committee_of_Sponsoring_Organizations_of_the_Tr
eadway_Commission

83

Corporate Governance (Conference Board)
The Corporate Governance (Conference Board) is a website focusing on:


Corporate Governance



Details of Conferences



Publications and Research into Corporate Governance from the conference
board

http://www.conference-board.org/knowledge/governance.cfm
3.13 THE UK INFLUENCE ON AND CONTRIBUTION TO CORPORATE
GOVERNANCE
Studies that have been carried out in the UK include and to be read in conjunction with
Appendix A:
Cadbury Report (1992)
The Committee chaired by Sir Adrian Cadbury, which became widely known as the
‘Cadbury Report’, whose recommendations covered the operation of the main board;
the establishment, composition and operation of key board committees; the importance
and relevance of the ‘comply or explain mechanism’.
http://www.ecgi.org/codes/code.php?code_id=132
Rutteman Report (1994)
The Rutteman Report (1994) examines the Internal Control and Financial Guidance for
Directors of UK listed companies registered in 1994.
http://www.bath.ac.uk/management/research/pdf/2004-13.pdf

84

Greenbury Report (1995)
The Greenbury Report was set up in response to concern at both size of the directors’
remuneration packages and the inconsistent and incomplete disclosure in companies’
annual reports. Central to the Greenbury Report recommendations were the
strengthening the accountability and enhancing the performance of directors. The two
main objectives achieved from the Greenbury Report were:
-

The presence of a remuneration committee comprised of independent nonexecutive directors who would report fully to shareholders in the companies’
year-end financial report.

-

The adoption of performance measures linking rewards to the performance of
both the company and individual directors so that the interests of directors and
shareholders are more closely aligned.

http://www.ecgi.org/codes/code.php?code_id=131
Hampel Report (1998)
The Hampel committee was established in 1995 to review the implementation of the
Cadbury and Greenbury committee recommendations, which overwhelmingly
supported the recommendations of the previous two committees. There was much
discussion about the extent to which a company should consider the interests of
various stakeholders as per those outlined in figure 2.2.
The Hampel Report stated that ‘Directors as a board are responsible for relations with
stakeholders; but are accountable to the shareholders’. The report also stated that
‘Directors can meet their legal duties to shareholders, and can pursue the objective of
long-term shareholder value successfully, only by developing and sustaining these
stakeholder relationships.
http://www.ecgi.org/codes/code.php?code_id=130

85

Combined Code (1998)
The Combined Code drew together the recommendations of the Cadbury, Green and
Hampel reports. The Combined Code operates on the ‘comply and explain’ mentioned
above. In relation to the internal controls of the business, the Combined Code states
‘the board should maintain a sound system of internal control to safeguard
shareholders investment and the companies’ assets.
http://www.fsa.gov.uk/pubs/ukla/lr_comcode.pdf
Turnbull Report (1999)
The Turnbull Committee was established to provide guidance as to the implementation
of the internal control requirements of the Combined Code. The Turnbull Report
confirms that it is the responsibility of the board to ensure that the company has a
sound system of internal control, and that controls are working, as they should.
http://www.iia.org.uk/knowledgecentre/keyissues/corporategovernance.cfm?Action=1
&ARTICLE_ID=107
Myners Report (2001)
The Myners Report on institutional investment concentrated on the trustee aspects of
institutional investors and the legal requirements for trustees with the aim of raising
standards and promoting greater shareholder activism. Additional recommendations of
the Myners Report included:
-

Stating the number of meetings of the board and its main committees in the
annual report, together with the attendance records of individual directors.

-

A chief executive should not also become chairman of the same company.

-

Non-Executive Directors should meet as a group at least once a year without
executive directors being present, and the annual report should indicate whether
such meetings have occurred.

-

The Chairperson and Chief Executives should consider executive development
programs to train and development suitable individuals for future directorship
roles.

86

-

The board should inform shareholders as to why they believe a certain
individual should be appointed to a non-executive directorship and how they
meet the requirements of the role.

-

There should be a comprehensive induction programme for new non-executive
directors, and resources should be available for ongoing development of
directors.

-

The performance of the board, its committees and its individual members,
should be evaluated at least once a year, the annual report should state whether
these reviews are being held and how they are being conducted.

-

A full-time director should not hold more than one non-executive directorship
or become chairman of a major company.

-

No one non-executive director should sit on all three principal board
committees (audit, remuneration and nomination).

http://hm-treasury.gov.uk/Newsroom_and_Speeches/Press/2001/press_myners_01.cfm
Higgs Report (2002)
The Higgs Report (2002) reviews the role and effectiveness on non – executive
directors.
http://www.kesteven.com.au/governance/reports.htm
Hermes Principles (2002)
The overriding requirement of the Hermes Principles is that companies be run in the
long-term interests of all shareholders. Companies adhering to the principle will not
only benefit shareholders, but also the long-term interests of other stakeholders.
http://www.ecgi.org/codes/code.php?code_id=123

87

King Report (2002)
The King Report is a comprehensive document that provides guidelines and corporate
governance in South Africa. This document builds on the earlier King Report, which
stated there should be an integrated approach to corporate governance, which took into
account the interests of various stakeholder groups.
http://www.ecseonline.com/PDF/King
Tyson Report (2003)
The Tyson Report (2003) examines the recruitment and development on non –
executive directors and looks at how companies might draw on broader pools of talent
with varied and complementary skills, experiences and perspectives to enhance board
effectiveness.
http://www.womenandequalityunit.gov.uk/publications/Tyson_report.doc
Smith Report (2003)
The Smith review was that of Audit Committees. The review made clear the important
role of audit committees, ’while all directors have a duty to act in the interests of the
company. The audit committee has a particular role, acting independently from the
executive, to ensure that the interests of the shareholders are properly protected in
relation to financial reporting and internal control.
http://www.nabarro.com/uploads/files/266.pdf
Combined Code (2003)
The Combined Code incorporates the substance of the Higgs and Smith reviews.
However, rather than stating that non one non-executive director should sit on all three
board committees, the Combined Code states ‘undue reliance’ should not be placed on
particular individuals.

88

http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf
Internal Control Guidance for Directors on the Combined Code (2005)
The Internal Control Guidance for Directors Code (2005) is related to as the title
suggests internal control. The three main components of this study are:


Maintaining a sound system of Internal Control



Reviewing the effective of Internal Control



The Boards statement on Internal Control

http://www.icaew.co.uk/index.cfm?AUB=TB2I_6242,MNXI_47896
3.14 AUSTRALIAN CONTRIBUTION TO AND INFLUENCE ON
CORPORATE GOVERNANCE

Studies that have been carried out in Australia include and to be read in conjunction
with Appendix A:

THE Hilmer Report (1993)
The Hilmer Report emphasized the importance of some basic principles of
enterprise/corporate governance, including:


Securing the confidence of the capital market by ensuring the interests of
shareholders and stakeholders are taken into account in many company
policies, and that the integrity of financial information is maintained



Ensuring equity amongst shareholders with systems in place to allow
reasonable shareholders’ participation in the affairs of companies



Monitoring the performance of the directors and officers in a way that the longterm value of the company is maintained



Ensuring the integrity and proper disclosure of relevant information in a timely
and honest manner

89



Models of relationships such as audit independence, supervision and reward for
management, audit committee memberships and independent chairmen of
boards and board committees

http://www.pc.gov.au/orr/reports/annrpt/reglnrev9394/index.html
THE Bosch Committee (1993) (1995)
A working group chaired by Henry Bosch (the Bosch committee) put forward a guide,
Corporate Practices and Conduct in 1991, with later revised versions in 1993 and
1995. This guide was the first Australian attempt to set out enterprise/corporate
governance standards of best practice. The guide considered the function of the public
company board, its structure, the role of company accountants and auditors, the
conduct of directors, the role of shareholders and codes of ethics.
http://www.law.unimelb.edu.au/cclsr/research-papers.pdf
THE Ramsey Report (2001)
The Ramsay Report (2001) examined the adequacy of Australian Legislative and
Professional requirements about the independence of external auditors, and made
recommendations for changes to the Australian requirements. The recommendations
covered five key issues concerned with either directly with audit independence
(employment relationships, financial relationships and the provision of non-audit
services) or with matters designed to enhance audit independence audit committees
and a board to oversee audit independence issues). Some of the most interesting
findings of Ramsay (2001) included that an auditor would not be taken to be
independent if:


Certain employment relationships existed with the client such as a current
partner, principle, manager, or professional employee of the audit firm is an
employee of the client

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

Any member of the audit engagement team, or any of his or her immediate
family’ (or any entity from which the firm or person controls) has any direct
financial investment in the client



A partner of the audit firm, or any entity which the partner controls, or a body
corporate in which the partner has a substantial holding, owes more than
$10,000 (or such other amount as may be prescribed by regulation) to the
client



A member of the audit engagement team has a business relationship with the
client or any of its officers

As stated somewhat surprisingly, if not controversially, Ramsay (2001) did not
recommend a ban on the provision of non-audit services to audit clients. Instead, it was
recommended that the regulation of non-audit services provided by audit firms to their
clients be dealt with in professional ethical rules. It was also recommended that the
disclosure requirements for non-audit services be enhanced to require disclosure of the
monetary amount and category of all non-audit services provided by the audit firm to
the client. Also recommended that a statement be made by the audit committee as to
whether the committee had considered the impact (if any) on the auditors’
independence of the provision of non-audit services. Finally recommended was the
establishment of an Auditor Independence Supervisory Board to oversee this area.
http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=296
Source: CPA, (2006), “CPA108 Reporting and Financial Practice” Deakin
University pp. 4.16 -4.17
Australian Standard: Good Governance Principles (AS 8000) (JUNE 2003)
The standard AS 8000 complements the guidelines produced by IFSA and the ASX,
and is predicted to set a clear way forward towards a generally accepted standard of
enterprise governance. CPA108 (p. 4.50)

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CPA Australia (2003)
As a leading professional body in Australia, CPA Australia has also published its
recommendations for enterprise governance principles in 2003 (see the CPA Australia
website (), which is similar to the ASX’s principles.
As stated CPA Australia also advises that the optimal number of directors on a board
should be 6 to 10 and that the maximum number of directorships for an individual
should not exceed 5, unless the director can clearly demonstrate that he/she has the
time to commit to additional appointments.
THE Uhrig Report (2003)
The Uhrig Report (2003) has been a relatively recent influential report into best
governance practice in public sector entities. In examined eight major government
entities including Australia Post, The Australian Investment and Securities
Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the
Reserve Bank of Australia (RBA). The terms of reference were to:
[Examine] structures for good governance, including relationships between statutory
authorities and the responsible government minister, the Australian Parliament and the
public, including business. A key task was to develop a broad template of governance
principles that, subject to consideration by government, might be extended to all
statutory authorities and office holders. CPA108 (p.4.56)
http://www.governance.canberra.edu.au/our_work/Uhrig.pdf
3.15 VARIOUS INFLUENTIAL STUDIES
THE OECD
The definition that the OECD (1999) attaches to describing corporate governance
is”…a set of relationships between a company’s board, its shareholders and other
stakeholders. It also provides the structure through which the objectives of the
company are set, and the means of attaining those objectives, and monitoring
performance, are determined.”

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The OECD suggests that there is no single model of good governance, but has
proposed five principles that are compatible with many systems around the world.
The OECD’s five principles for good governance encompass:
1. The rights of shareholders (the protection and the ability to influence
decisions)
2. The equitable treatment of shareholders
3. The role of stakeholders
4. Disclosure and Transparency
5. The responsibilities of the board
The OECD’s principles are seen to be embodied in the ASX Corporate Governance
Principles and Guidelines.
http://www.oecd.org/
THE World Bank
The World Bank’s corporate governance activities focus on the rights of shareholders,
the equitable treatment of shareholders, the treatment of stakeholders, disclosure and
transparency and the duties of board members.
The World Bank utilises the OECD principles to prepare country corporate governance
assessments which detail and assess corporate governance institutional framework and
practices in individual countries.
The International Monetary Fund (IMF) also produces reports on the standards and
codes, which summarise the extent to which countries observe internationally
recognized standards and codes.
http://www.worldbank.org/

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Global Corporate Governance Forum
The Global Corporate Governance Forum (GCGF) is at the heart of corporate
governance co-operation between the OECD and the World Bank. The GCGF charter
is aimed at bringing together leading groups in corporate governance, to exchange
experience and good practices; to co-ordinate activities and fills gaps in provision of
technical assistance.
http://www.valuebasedmanagement.net/organizations_worldbank.html
International Corporate Governance Network
The International Corporate Governance Network (ICGN), founded in 1995, whom
membership includes major institutional investors, investor representative groups,
companies, financial intermediaries, academics and others with an interest in the
development of global corporate governance practices. The objective of the ICGN was
to facilitate international dialogue on Corporate Governance issues. The ICGN issued a
statement on Global Corporate Governance Principles, which comprised three main
areas. Firstly, a statement on the OECD principles which the ICGN views as ‘a
remarkable convergence on Corporate Governance common ground among diverse
interests, practices and cultures, which it sees as the minimum acceptable standards for
companies and investors around the world. Secondly, the ICGN statement discusses its
approach to the OECD principles, which encompasses ten key areas. Thirdly, the
ICGN amplifies the OECD principles, emphasizing or interpreting each principle as
appropriate.
http://www.icgn.org/
Commonwealth Association for Corporate Governance
The Commonwealth Association for Corporate Governance (CACG) has produced
some fifthteen principles and guidelines covering a variety of key areas such as
leadership, board appointments, strategies and values, company performance,

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compliance, communication, accountability to shareholders, relationships with
stakeholders, balance of power, internal procedures, board performance assessment,
management appointments and developments, technology, risk management and future
solvency.
http://www.cacg-inc.com/
3.16 MAJORITY SHAREHOLDERS INFLUENCE
It is in this section where the majority shareholder, whether institutional or non –
institutional is discussed, as a majority shareholder can be either. To define a majority
shareholder: demo.pcinvest.com/commerce/ilMMa.htm
A shareholder who controls more than half of the outstanding shares of a corporation-commonly considered 51% of the outstanding shares. However, if ownership is widely
distributed such that there are no majority shareholders, control may be gained with
far less than 51% of the outstanding shares.
This is an interesting area as control is something that is either exclusive or shared as
the above definition outlines. The influences of Majority shareholders are exercised
through voting rights. As Per Hanrahan, Ramsay, and Stapledon “Commercial
Applications of Company Law” pp.143 - 144 (2002) state:


Whether members have a power to compel the company to take some action
against the wishes of directors, or whether the power is simply one to approve
or veto some action proposed by the directors



Whether the power to vote is conferred by law or is something that can be
removed or excluded by agreement between the participants in the company



What percentage of members must agree with the resolution for it to be passed
(generally, either an ordinary or special resolution will be required)



Whether those who dissent from the proposal are bound by the majority’s
decision, or have a right to ask a court to review the merits of the decision to
ensure it is fair.

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As stated, Generally speaking, members of public companies have more extensive
voting rights than members of proprietary companies, and members of listed
companies have more extensive voting rights than members of unlisted companies.
Members’ voting rights are limited to the matters expressly provided for in the
Corporations Act, the internal governance rules and the general law. The Australian
Stock Exchange (ASX) Listing Rules confer more extensive voting rights on members
of listed companies.
Typically, company members may have a right to vote on certain decisions relating to
the structure or constitution of the company, including:


adoption and amendment to the internal governance rules



changes of company name and type



variation of class rights



certain transactions affecting share capital (such as selective buybacks and
reductions of capital)

Members may also have a say in the composition of the board and the choice of
company auditor – this may include a right to vote on:


the appointment and removal of directors



certain of the directors’ remuneration and benefits



the appointment and removal of the companies auditor

In certain companies, members may have a right to veto some transactions. These
include:


related party transactions by public companies and their controlled entities



certain significant commercial transactions by listed companies (such as the
sale of the company’s main business



certain takeovers and reconstructions

Finally members can use their voting rights:


to initiate a members voluntary winding up

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

to pass a resolutions where the board is unable to act to ratify a breach of
directors duties

As can be seen, the areas to which members have influence is quite extensive and in
corporate governance terms quite powerful. The greater the voting power of the
majority shareholder/s the more relevant is the influence levied on these areas and
issues.
3.17 MINORITY SHAREHOLDERS REMEDIES
As Per Hanrahan, Ramsay, and Stapledon “Commercial Applications of Company
Law” pp.182 - 184 (2002) state:
Company law imposes restrictions on the exercise by members of the voting rights
attaching to their shares so as to protect minority shareholders from exploitation. One
option open to members who disagree with the decisions of the majority is to sell their
shares, however this not always an option.
A summary of restrictions imposed on majority voting power to protect the minority
shareholders from oppression are as follows:


under a legal principle known as the equitable limitation on majority power



through procedural requirements that apply to particular decisions made by
company members



through provisions of the Corporations Act and, for listed companies, the ASX
Listing Rules, which prevent interested members from voting on certain
resolutions



under statutory provisions protecting the minority



through legal rules that protect the personal rights of members



through the limits on the power of the majority to ratify breaches of directors
duties.

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3.18 MARKET CORRECTION OR GOVERNMENT INTERVENTION
A report commissioned by the Federal Government in July 2002, which was the ‘Joint
Standing Committee on Public Accounts and Audit’ (JSCPAA). The JSCPAA adopted
fairly concise Terms of Reference into a review of Independent Auditing by Registered
Company Auditors. It was stated, ‘With the spate of recent noteworthy corporate
collapses both within Australian and overseas, the Joint Committee of Public Accounts
and Audit wishes to explore the extent to which it may be necessary to enhance
accountability of public and private sector auditing’.
Further stated, ‘In particular, the Committee is keen to determine where the balance
lies between the need for external control through government regulation, and the
freedom for industry to self – regulate’.
According to this report, it is evident that Commerce and Industry has preference for
greater self – regulation rather than enhanced Government Intervention. As noted by
the report ‘Any substantive shift in the regulatory balance would bring with it
enhanced moral hazard, i.e. the onus of responsibility would inevitably shift from the
private accounting sector to the government to ensure regulatory requirements are
met’.
Generally the opinion of Commerce and Industry according to this report is that within
the existing business framework of Australian Corporation Law: jurisprudence;
Australian Accounting Standards (now AIFRS): the rule of professional accounting
associations, rather than enhanced government regulation is the optimal outcome.
Another report commissioned by the Australian Federal Government which was called
the ‘Ramsay Report’ noted a substantial deficiency in the Corporations Law which was
attributed to government failure in the area of auditor independence and accountability
under current Corporations Law.

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3.19 SHARE PRICE AS INDICATOR OF GOOD/POOR CORPORATE
GOVERNANCE
In the ASX Listing Rule 3.1 in the continuous disclosure chapter states:
‘Once an entity is or becomes aware of any information concerning it that a
reasonable would expect to have a material effect on the price or value of the entities
securities, the entity must tell the ASX that information.’
Section 677 of the Corporations Act (2001) defines material effect on price or value
as:
‘For the purposes of sections 674 and 675, a reasonable person would be taken to
expect information to have a material effect on the price or value of ED securities of a
disclosing entity if the information, would, or would be likely to, influence persons who
commonly invest in securities in deciding whether to acquire or dispose of the ED
securities.
Reports that are able to accessed taking share price as a key indicator of Good / Poor
Corporate Governance are for example; The Institutional Shareholder Services (ISS),
which provides a ‘Corporate Governance Quotient’ for US and International
Companies by subscription. The quotient shows the impact of over 60 conventional
corporate governance measures on share performance and valuations so that it can be
seen which corporate governance factors have the greatest relationship with financial
measures (www.issproxy.com).

In Australia there is the Horwath Corporate Governance Report that ranks the top 250
Australian Companies, with the use of both soft and hard measures to assess Corporate
Governance performance against both national and international corporate governance
codes and guidelines.

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Another noteworthy publication is the Corporate Governance: Business under
Scrutiny, a White paper from the Economist Intelligence Unit sponsored by KPMG,
which measures Directors against Corporate Governance Performance.
It is interesting to note that all of the three mentioned reports use Share Price
Movement as a key indicator when measuring Corporate Governance Performance.
FIGURE 3.4 AWB SHARE MOVEMENT CHART

Source: www.asx.com.au 6/03/2006

As can be seen by the above charting of share prices the value of the AWB share has
dropped dramatically.
As this exert shows that share price fluctuations and corporate governance are indeed
linked.
‘The dumb move by the AWB's board was not the sacking of chief executive Andrew
Lindberg but the wheat marketeer's failure to implement good governance policies ("A
dumb move by AWB's board", Chanticleer, February 10). This episode should sheet

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home to all company boards that good governance is the only way to maintain longterm profitability and shareholder confidence.’
The Financial Review 13/02/2006
3.20 ROLE OF INSTITUTIONAL INVESTORS
To firstly define an institutional investor as per
http://www.investorwords.com/2504/institutional_investor.html
Is an entity with large amounts to invest, such as investment companies, mutual funds,
brokerages, insurance companies, pension funds, investment banks and endowment
funds. Institutional investors are covered by fewer protective regulations because it is
assumed that they are more knowledgeable and better able to protect themselves. They
account for a majority of overall volume. As Weiss (2004) states some benefits that
institutional investors may provide are:


Adequate shareholder control of the corporation



Effective Monitoring of Management’s performance



Effective oversight of board’s resolutions



Close alignment of management’s and shareholder’s interests



Increased productivity and enhanced firm value



Effective deterrence of fraud and other forms of non-compliance

Weiss(2004) further states that institutional investors promote successful governance
reforms, encompassing the litigation, regulatory and policy – making arenas, that
ultimately will make corporate directors and executives more accountable to
shareholders, instill confidence among investors, institutional and non-institutional
alike, in the integrity of the financial markets; protect employees, bondholders and
other stakeholders from fraud and egregious corporate conduct.
‘We believe that by virtue of their large holdings and the significant influence they can
exert of management of public companies, private and public institutional investors –
including pension funds and employee stock ownership plans – are the dominant driver

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of governance reform within the institutional shareholder community. Owing to their
vast economic power and financial sophistication, we believe that institutional
investors are best situated to lead the national – and, indeed the global – effort to
improve upon corporate governance of public companies listed on various American
exchanges.’
‘ Increasingly, institutional investors have come to recognize their power to effect
change and set the desirable course for corporate governance reform, and the
substantial benefits that are bound to accrue. In pursuing such reforms, institutions not
only fulfill their fiduciary responsibilities to individual investors – employees, retirees,
and other retail investors – who have entrusted their assets to them but also bring to
bear their role as leading participants in modern financial markets. The degree to which
institutional investors use their power and influence to pursue value – enhancing
corporate governance reforms is bound to have a tremendous impact in coming years.’
‘As owners of public corporations, shareholders should have the ability to actively
participate in governing the corporation. To that end, shareholders should be able to
play a leading role in corporate decision-making where fundamental, long-term
corporate changes are at issue. Precisely for this reason, establishing and maintaining
proper balance between the ability of the management to run the operations and take
business risks, on the one hand, and the ability of shareholders to govern the
corporation at a more general level, protect against abuses, and monitor the
management’s performance, on the other, requires that shareholders possess basic
participatory and decisional powers.’
‘In large measure, the capacity of shareholders to have an impact on the corporation
and participate in its governance flows from specific governance powers that every
institution should work to have adopted by public companies in its portfolio. Ensuring
that shareholders possess such powers will situate them in a strong monitoring position
so as to effectively oversee the management’s performance and, through their vote,
screen-out proposed resolutions that do not well serve their interests. Transparency of
corporate information is also crucial to effectuating the oversight role of institutional
investors over the board and the performance of the management.’

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‘We believe that institutional investors can maximize their impact by pursuing reform
activities on two different, yet not mutually exclusive fronts. The institutional role in
prompting effective corporate governance reforms encompasses both internal activism
with respect to the companies whose securities they hold and external activism with
respect to the regulatory and policy environment in which issuers, securities
exchanges, and members of the securities and financial services industry operate.’
‘First, institutional investors should take steps to establish an ongoing dialogue with
the board and the management over reform of governance policies that they consider to
be substandard. Second, institutional investors should reach out to third-party
organizations—including securities exchanges, legislative bodies, regulatory agencies,
and securities industry and trade associations—that influence, propagate or enforce
regulations and standards that are relevant to instilling effective corporate governance
and corporate accountability. To that end, institutions should offer their sophisticated
insight and input to enhance the quality, quantity, and voice of institutional advocacy
in regulatory and policy circles, especially in rule-making and standard-setting
processes.’
In a paper by Davis (1996) defines institutional investors as specialized financial
institutions, which manage savings collectively on behalf of small investors, toward a
specific objective in terms of acceptable risk, return – maximization and maturity of
claims.
As outlined by Davis (1996), there are essential characteristics of institutional
investors, these are:
Firstly, institutions provide a form of risk pooling for small investors, thus providing a
better trade off risk and return than is possible via direct holdings.
Secondly, the size of institutions has a number of important implications. In terms of
economies of scale, ability to attract in large volumes typically leads to a lowering of
transaction costs. Size also enables them to invest in large indivisible investments;
considerable countervailing power also results from size. This gives rise to the ability
to ensure fair treatment by capital market intermediaries on the one hand, and on the
other gives potential for improved control over companies in which they invest, thus
reducing adverse incentive problems, i.e. (agency problems).

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In this paper Davis (1996 pp.82 – 83) also discusses Corporate Governance Issues and
in particular ‘Dealing with Incentive Problems.’ As stated, the development of
institutional investors and their growing dominance as owners of corporations has had
a pervasive influence on corporate governance.
The basic issue as simply stated, given the divorce of ownership and control in the
modern corporation, principal – agent problems arise, as shareholders cannot perfectly
control managers acting on their behalf. Principal – Agent problems in equity finance
imply a need a for shareholders to exert control over management, while also
remaining sufficiently distinct from managers to let them buy and sell shares freely
without breaking insider trading rules.
If difficulties of corporate governance are not resolved, these market failures in turn
also have implications for corporate finance in that equity will be costly and often
subject to quantitative restrictions.
Further Farrar (2001) defines the institutional investor as a broad term that
encompasses pension and superannuation fund investment companies, mutual funds,
unit trusts, insurance companies, banks and charitable foundations. It also includes
funds managers who are professionals managing investments on behalf of other
institutional investors.
As Farrar (2001) p.339 illustrates the level of institutional investment is on the rise
with 31.7% of portfolios in held in Australian Public Listed Corporations as at 30th
June 1998, held by institutions.
As Farrar (2001) further points out there are legal and other restraints placed on
institutional investors, these being:


problems centred around control



problems about conflict of interest



problems of access to inside information and insider trading



possible problems centred on fiduciary and statutory obligation

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3.21 THE RELATIONSHIP BETWEEN FAMILY FIRMS AND CORPORATE
GOVERNANCE AND COMPARISON WITH NON – FAMILY FIRMS
As Bartholomeusz and Tanewski (2006) suggest in a paper written on this particular
aspect find that research finds that evidence that suggests that family (Non Institutional
Controlled Firms) as opposed to non – family (Institutional Controlled Firms) utilise
substantially different corporate governance structures and that these structures lead to
performance differentials. In terms of agency costs it is argued by the authors that
family control creates rather than negates agency costs.
The paper is broken into two main purpose pursuits. The first purpose as stated is to
contribute to the small but emerging body of family firm literature and provide a new
and powerful perspective on agency theory. A portion of the paper examines the
relationship between family control and corporate governance. As James (1999) posits
that family block holders in family controlled firms have different incentives to
atomized shareholders in widely held companies. James proceeds to pose the question
of whether family ownership provides the incentive to reduce agency costs through as
is stated ‘a better alignment of shareholder and managerial interests’, although both
could be and in family firms is one and the same or create agency costs, by providing
opportunities for family members to expropriate the wealth of out side shareholders.
The second purpose of the paper is to examine the degree to which family firms adopt
wealth - maximizing internal controls as opposed to the degree that of which non –
family firms adopt wealth-maximizing controls. As the literature suggests, the agency
costs of closely held firms, i.e. those firms where shareholding is concentrated in a
small number of closely associated shareholders, should be less than that of widely
held firms, i.e. those firms where shareholding is dispersed among a large number of
normally disassociated shareholders resulting in superior financial performance.
Contrary to this theory, authors such as, Mroczkoski & Tanewski (2006), Harijono,
Arif & Tanewski (2004), Anderson, Mansi & Reed (2003), Blondel, Rowell & Van der
Heyden (2002), Klien & Blondel (2002), Demetz & Lehn (1985) all state
acknowledgement that there are distinct deviations due to the previously mentioned
differing incentives of the family firms as compared with non-family firms. Anderson

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& Reeb (2003) derive that as an unintended consequence that in fact, family
companies that are closely held and theoretically have reduced agency costs, may in
fact impede performance as opposed to widely held firms, where agency costs Are
expended for an expected superior return. As well it is argued that family firms make
decisions on much longer time lines than non-family firms.
Chami (1999) suggests that family owners view the firm as an asset to be passed on to
later generations, leading to strict adherence to maximizing the value of the firm,
James (1999). In contrast the average tenure in Australia for a CEO is 4.4 years, Booz,
Allen, Hamilton & Business Council of Australia (2003), accepts that he or she will
outperform the average and therefore decides to manage the company over a short
period of time to his or her own utility maximization. This fact being the case though is
outlined by Adam Smith (1776), Berle & Means (1932), Alchian & Demsetz (1972)
and Jensen & Meckling (1976).
Andersen, Mansi & Reeb (2003), following on from Jensen & Meckling (1976), argue
that atomized shareholders have an incentive to take on risky projects with a view of
expropriating wealth to bond holders. In comparison family members because of their
undiversified shareholding, long term interest and concern for reputation have
fundamentally different risk profile to typical equity holders.
As stated, as a consequence are more likely to maximise the overall value of the firm
as opposed to the value of equity, reducing the agency cost of debt. As stated by
Andersen, Mansi & Reebs (2003), empirically corroborated results suggest that the
average cost of debt financing is 32 basis points lower for family firms than nonfamily firms.
In closing it could be reasonably assumed that when applying strict agency theory as
outlined by Adam Smith (1776) and Jensen & Meckling (1976) that outcomes raised in
this study possibly should be in the reverse, i.e. Lower agency costs in family
business’s that are closely held firms, that profits could be expected on average to
higher than non family firms, rather than being lower.
Alternatively as Smith and Jensen & Meckling hypothesis suggest should be the case
for non family firms is that managers indulge in self maximisation and that the wealth
and interests of the shareholder may be diminished, this is not necessarily as indicated

106

always the case. Possible reasons for this outcome may be the influence of counter
balances. Two such suggested counter balances may be the influence of Institutional
Shareholders and the effects of bonding techniques and performance bench marks,
used to motivate and bench mark the performance of executive, which in turn is used
to determine final remuneration and make up remuneration.

3.22 ENTERPRISE GOVERNANCE

While corporate governance, arguably a well known term, is receiving much
prominence as a consequence of high profile corporate failures over several decades,
enterprise governance, a relatively new concept, is broader in its orientation. Corporate
governance has generally been described as the compliance framework aimed as
ensuring that those responsible for steering the corporation (principally, the directors
and senior management) conform to codes, standards, controls and principles
necessary to maintain and protect the resources of the enterprise. Whereas, enterprise
governance encompasses the entire accountability framework, including a framework
for compliance (known as corporate governance) and the performance of the enterprise
generally (known as business governance), being the two major components of
enterprise governance. CPA108 (p. 4.5)
3.23 SUMMARY
During this chapter the concepts of the theories that have been developed as to what
may affect disclosure have been discussed. The role of corporate information
disclosure and why it is imperative that a corporation be transparent in their disclosure
process.
Also discussed was the type of problems, which may suppress information disclosure,
and what are the consequences of such problems on the corporation.
Following was academic theories of disclosure and outlines the factors and reasoning’s
for transparent or opaque disclosure by corporations.

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An insight into both US/European and US influences and contributions to Corporate
Governance alongside developments and contributions both in Australia and
Internationally.
Majority shareholders whether they are institutional or non – institutional have an
impact on decision-making and corporate governance issues and have the voting
capacity to bring influence to bear.
Minority shareholders unfortunately can become affected and displaced by the will and
influence of Majority shareholders, but there are remedies at law, which can mitigate
or eliminate these ramifications.
Outlined are studies being the ‘Joint Standing Committee on Public Accounts and
Audit’ (JSCPAA) and the ‘Ramsay Report’ into audit practices and independence and
whether there is a need for greater government intervention or which was seen as the
preferable mode, greater self-regulation.
The share price is a very fluid indicator as to the state of health, not only of the
corporation, but also the state of corporate governance within the corporation.
The role of the institutional investor is pivotal in this study and the effects that are had
on the directors, performance, procedure, investment and corporate governance issues.

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CHAPTER 4
EMPIRICAL RESEARCH AND DEVELOPMENT OF HYPOTHESIS RELATING
TO CORPORATE GOVERNANCE DISCLOSURE

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4.0 INTRODUCTION
Chapters one to three have defined Corporate Governance, legislation, regulations
and the business environment as thus pertain to Australian business. Throughout these
chapters the author has attempted to outline in as much detail as possible all the factors
and elements to Listed applicable Public Companies operating within Australia and its
jurisdictions. The purpose of chapter four is to research and develop a testable
hypothesis.
4.1 STATEMENT OF HYPOTHESIS
 The Hypotheses which the author wishes to test are:
 H1o: Higher levels of institutional shareholding have no association with
corporate governance practice
 H1a: Higher levels of institutional shareholding are associated with higher
levels of corporate governance practice
 H2o: Higher levels of institutional shareholding have no association with
financial performance
 H2a: Higher levels of institutional shareholding are with higher levels of
financial performance
4.2 HYPOTHESIS DEVELOPMENT
Hypothesis development is a body of techniques for investigating phenomena and
acquiring new knowledge, as well as for correcting and integrating previous
knowledge. It is based on gathering observable, empirical, measurable evidence,
subject to principles of reasoning.
Although procedures vary from one field of inquiry to another, there are identifiable
features that distinguish scientific enquiry from other methods of developing
knowledge. Scientific researchers propose specific hypotheses as explanations of
natural phenomena, and design experimental studies that test these predictions for
study. These steps are repeated in order to make increasingly dependable predictions of
future results. Theories that encompass wider domains of inquiry serve to bind many
specific hypotheses together in a coherent structure. This in turn aids in the formation

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of new hypotheses, as well as in placing groups of specific hypotheses into a broader
context of understanding.
Among other facets shared by various fields of inquiry is the conviction that the
process must be objective to reduce a biased interpretation of the results. Another basic
expectation is to document, archive and share all data and methodology so it is
available for scrutiny.
Enveloping the theoretical models of hypothesis development into the hypotheses
outlined in 4.1 assists in solidifying the foundations that relate to institutional
involvement and influence on boards as to corporate governance compliance and
subsequent financial performance.
4.3 PROFILE OF NON-INSTITUTIONAL CONTROLLED ENTITIES
The predominant characteristic of non – institutionally controlled entities observed is
the level of control, which is exerted on the board and entity by a dominant
individual/Corporation or family shareholder/s.
4.4 PROFILE OF INSTITUTIONAL CONTROLLED ENTITIES
The predominant characteristic on institutional controlled entities observed is the level
of control, which is exerted on the board and company by dominant financial
institutions.
4.5 NOMINEE SHAREHOLDERS
Nominee shareholders are those financial institutions, such as superannuation funds,
investment banks and large stockbroker firms, which hold portfolios of shares in trust
for other institutional or private shareholders.
4.6 SUBSTANTIAL SHAREHOLDERS
Substantial shareholders provisions, ss 707 – 716 of the Corporations Act (2001), aim
to promote an informed market for shares of public listed companies. The provisions
oblige persons entitled to more than 5 percent of voting shares of a listed company to

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disclose to the company full particulars of their entitlement in the shares. Disclosure of
substantial shareholdings enables both a company and the market to know who
controls significant shareholdings. Sections 717 – 727 of the Corporations Act (2001)
complement the substantial shareholding provisions. They enable ASIC to obtain
information not only as to the identity of persons who control voting shares or a
‘relevant interest’ in those shares but also the nature and extent of their interest.
4.7 SAMPLE SELECTION CLUSTER
The method used to select sample institutional and non – institutional controlled
entities was completely random, given that entities were chosen to equally represent
the population of the ASX as May 5, 2005. The companies selected were taken from a
diverse number of sectors from the ASX spectrum with the intention of creating a wide
and unbiased spread of entities as possible.
4.8 CHARACTERISTICS OF THE BOARDS
As Sheridan (2001) notes, the boards of Australian ASX Listed public companies are
predominately controlled by men as the following table sets out.
Table 4.1 Board Positions by Gender
Board Members

Number

Percentage

Men

6,409

87.3

Women

251

3.4

Not Identifiable

681

9.3

Total

7,341

100.0

Source: A View from the Top: Women on the Boards of Public Companies: March
(2000) Sheridan, A., (2001 p.10)
It was noted by Sheridan (2001), that the average age of female board members was 45
years, and it was further noted by Braund (2005), that the average age of male board
members was 57 years.

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Generally as noted above, female representation on the boards of ASX Listed
Companies as at March (2000) was substantially less than those of male counterparts.
It is seen relevant to the level of voluntary disclosure compliance, whether the make up
of the board of directors, has any direct or indirect impact on such compliance levels.
4.9 FAMILY MEMBERS ON BOARD
The impact of family members on the board of directors is generally viewed as being
rather influential and pervasive when decisions are being considered and made by the
company. In the majority of cases the founding family member and the wider family
have a controlling interest and vote to be able to sway a vote on a particular decision
toward the desired outcome.
4.10 DIFFICULTIES ENCOUNTERED COLLECTING SAMPLE DATA
Difficulties encountered collecting sample data in this study include:


Whether the voluntary corporate disclosures made by boards of the various
selected sample companies are relatively unbiased or whether as suggested in
2.3 have been biased by signalling concerns.



Whether the independent variable data has been biased by the fact that certain
business entities have been used as vehicles for example, as tax minimization
purposes as opposed to those business entities that are operated for the purpose
of maximization of shareholder returns.
4.11 SUMMARY

Chapter four discussed the formulation of hypotheses that relate to the research
question. Outlined as well as the hypotheses being tested are the various factors that
influence the hypothesis being the institutional shareholders and board directors that
have direct bearing on the outcome of Corporate Governance Disclosure compliance.
Also highlighted was whether the gender or age of board directors may also have
influence on compliance. Profiled as well were institutional and non institutional

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corporations and the effect on the board and compliance of family members in a family
controlled entity.

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CHAPTER 5
RESEARCH AND DESIGN METHODOLOGY

.

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5.0 INTRODUCTION
Chapter five examines the data that has been accumulated on the sample of companies
selected that will either support or refute the hypotheses outlined in Chapter four.
During the analysis phase statistical testing will be performed to summarise the
relevant data. The Chapter outlines the actual research question posed by the paper and
the intended objectives that are desired. With any type of research there needs to be a
point of significance and how the research intended to contribute to the body of
accumulated knowledge in an area. To achieve a desired outcome the scope or
parameter that are the defining boundaries need to be specifically outlined. After
boundaries are established, the research methodology and design specify what data is
required and what areas need to be addressed to accumulate, classify and disseminate
data into a format to be further worked on. Lastly the chapter examines the methods to
be employed to transform data into useful and usable information.
5.1 RESEARCH QUESTIONS AND OBJECTIVES
The objective of this research is to evaluate the current levels of voluntary corporate
governance compliance of selected ASX Listed public companies in Australia in
relation to ASX CGC Principles and Recommendations and financial performance
levels. The focus will be on the correlation of the levels of corporate governance
disclosure compliance and shareholding of the selected companies based on four
dependent variables (i.e. corporate governance disclosure, type of shareholder and
level, i.e. institutional or non - Institutional).
5.2 REASONS AND SIGNIFICANCE OF THE STUDY
The reasons for the study are to draw an association between the levels of voluntary
disclosure compliance of a corporation as compared with the ASX CGC Principles and
Recommendations; and secondly whether there is a significant difference when the
share register is dominated by an Institutional or Non – Institutional shareholder. The
significance of the study is to broaden the research as to whether a corporation operates
more efficiently and profitably as a consequence of good corporate governance which
is consequence of Institutional Shareholding influence.

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5.3 RESEARCH SCOPE
In this study, the analysis of and the extent of voluntary disclosure in Australia are
assessed and limited to the disclosure of information in corporate annual reports.
The study focuses on (214) ASX Listed Public companies. Only ASX Listed Public
companies’ rather private or unlisted private companies that have readily accessible
information.
The disclosure-scoring sheet for this study is compiled on a constructed access data
base which sets out 30 possible Principle Guidelines, which can be either taken up or
not, depending on the board of a particular company.
5.4 RESEARCH METHODOLOGY
The research methodology employed is to test increments and decrements in disclosure
compliance levels. The focus of the methodology will score which ASX CGC
guidelines have been voluntarily disclosed and then calculate a disclosure score
between 0 – 100. The independent variables, which are accounting ratios as, set out in
section 5.8, a normative paradigm is employed consistent with the approach taken in
this study.
5.5 RESEARCH DESIGN
1) The research design involves downloading 2005 Company annual reports.
2) It is necessary to key in statements of financial performance and positions for y/end
2004 and 2005 into Microsoft Access Database specifically constructed to calculate
and collate required data sets as per Appendix B and sections 5.8 and 5.9.
3) Involves splitting off data as per second step into dependent variable and
independent variable data.
4) Involves splitting data in the third step according to like industry sectors.
5) The data from step four is then split into Institutional and Non – Institutional
controlled companies.
6) The data as arranged in step five is then analysed using both univariate and
multivariate statistical methods.
7) The results of analysis are written up.

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Figure 5.1 Graphical Research
Design Plan

Download
Annual Company
Reports

Key Financials
Into DB to
Calculate Ratio
& Other Data

Split Off Dependent
Variable Data

Split Off
Independent
Variable Data

Split Off into
Industry Sectors

Split Off into
Institutional/
Non-Institutional
Coys

Perform Univariate/
Multivariate
Analysis/Regression

Write up Results of
Analysis/Conclusion

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5.6 RESEARCH SAMPLE
The sample size selected for the study is 214 ASX Listed Companies.
•

The sampling method used in this paper to sample the population was the
‘stratified random sampling method’. This method is defined by Cavana et.al
(p.463) as a probability sampling design that first divides the population into
meaningful, non overlapping subsets, and then randomly choosing the subjects
from each subset. I.E. Institutional v Non – Institutional Corporations and then
defined ASX sectors.

•

The population and subsequent selected sample is one which is determined as a
non contrived setting, I.E. the ASX

•

The nominal scale is used in conjunction with dependent variables to indicate
voluntary disclosure as 1 or non-disclosure as 0 as per ASX CGC Principles,
Guidelines and recommendations

•

The ratio scale is used in conjunction with independent variables, which are
financial ratios as calculated using annual report financial information

•

Descriptive/Univariate analysis – both summary and detailed include, mean,
standard deviation, median, mode, skewness and kurtosis.

•

Multivariate analysis – inter item correlation matrix (The correlation matrix
gives the degree to which items co vary in a standardized form (as a standard
score known as a correlation co-efficient). These co variances that have been
transformed by being standardized around a SD of 1.0) Communalities
(Communalities as Cooksey p.82 points out are indices that summarise how
much variance in each variable are shared in common with the variance of the
set of factors in the final solution.) Factor analysis (A ‘factor structure matrix’
(a set of Pearson Correlations between each variable and each factor in the final
solution). A Matrix of ‘factor correlations’ shows the estimated degree of
correlation which would exist between the factors in the correlation.)

•

Multiple Regression – both summary and detailed include, R, R2, F-Score, TScore and related significance levels.

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5.7 DATA ANALYSIS PROCEDURES
Data analysis procedures are as follows:
a) Descriptive analysis of items in the disclosure-scoring sheet are undertaken to find
the most and least frequent items disclosed by the companies in the sample. The scores
are then tabulated in the scoring sheet outlined in section 5.4 and then converted into a
percentage of a total possible score attainable.
b) Statistical analysis based on both Univariate and multivariate methods were
performed to test the generated hypothesis will be carried out.
c) Multiple Regression models were also conducted using criterion dependent and
predictor independent variables to assess the level of disclosures at various levels of
activity.
5.7 MODEL SPECIFICATION
The author wishes to test the relationship between corporate governance compliance
levels and the levels of institutional as compared with non institutional owner
dominance in Australian Public listed corporations.
If institutional dominated compliance > non institutional compliance then null
hypothesis rejected and alternative hypothesis accepted

As well as testing the above mentioned relationship, the author also wishes to test the
relationship between institutional and non institutional owner dominance in Australian
Public listed corporations as to levels of financial performance.

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Financial Performance Measures Model Specifications:
Inpershare: f (FAT*TAT*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (FAT*TAT*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (CR*QR*CashR*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (CR*QR*CashR*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (DebtCapR*Tier*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (OpmargR*EBIT*EBT*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (OpmargR*EBIT*EBT*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (ROA*ROTC*ROE*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (ROA*ROTC*ROE*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (ROTC*WCT*DebrCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (ROTC*WCT*DebrCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Inpershare: f (ROE*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nipershare: f (ROE*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (FAT*TAT*MarketCap*EPS) then P Score Conv <>.05
Nidislev: f (FAT*TAT*MarketCap*EPS) then P Score Conv <>.05
Indislev: f (CR*QR*CashR*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (CR*QR*CashR*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (DebtCapR*Tier*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (DebtCapR*Tier*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (OpmargR)*EBIT*EBT*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (OpmargR)*EBIT*EBT*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (ROA*ROTC*ROE*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (ROA*ROTC*ROE*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (ROTC*WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (ROTC*WCT*DebtCapR*DebteqR*MarketCap*EPS*PE) then P Score Conv <>.05
Indislev: f (ROE*Debteqr*MarketCap*EPS*PE) then P Score Conv <>.05
Nidislev: f (ROE*Debteqr*MarketCap*EPS*PE) then P Score Conv <>.05

Given that abbreviations are as such:
FAT (Fixed Asset Turnover)
TAT (Total Asset Turnover)
MarketCap (Market Capitalisation)
EPS (Earnings per Share)
PE (Price/Equity Ratio)
CR (Current Ratio)
QR (Quick Ratio)

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CashR (Cash Ratio)
WCT (Working Capital Ratio)
DebtCapR (Debt/Capital Ratio)
DebteqR (Debt/Equity Ratio)
Tier ( Times Interest Earned Ratio)
OpmargR (Operating Margin Ratio)
EBIT (Earnings before Interest and Tax)
EBT (Earnings before Tax)
ROA (Return on Assets)
ROE (Return on Equity)
ROTC (Return on Total Capital)

5.8 INDEPENDENT VARIABLES
The independent variables are those which as the term suggests, that independent of
the dependent variable, these variables will fluctuate in a random pattern on regression
to produce a predicted outcome when interacting with the dependent variable.
Working Capital Ratio
The Working Capital Ratio is the ratio of Sales for the current year over Average
Working Capital comprising (PY Working Capital + CY Working Capital)/2
Fixed Assets Turnover
The Fixed Assets Turnover Ratio is the ratio of Sales for the current year over Average
Fixed Assets comprising (PY Fixed Assets + CY Fixed Assets)/2

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Total Assets Turnover
The Total Assets Turnover Ratio is the ratio of Sales for the current year over Average
Total Assets comprising (PY Total Assets + CY Total Assets)/2
Current Ratio
The Total Assets Turnover Ratio is the ratio of Sales for the current year over Average
Total Assets comprising (PY Total Assets + CY Total Assets)/2
Quick Ratio
The Quick Ratio is the ratio of (Cash + Marketable Securities + Accounts Receivable)
over Current Liabilities for the CY.
Cash Ratio
The Cash Ratio is the ratio of (Cash + Marketable Securities) over Current Liabilities
for the CY.
Debt to Total Capital Ratio
The Debt to Total Capital Ratio is the ratio of Total Debt (Current + Long Term) for
the CY over Total Capital (Debt + Equity) for the CY.

Debt to Equity Ratio
The Debt to Equity Ratio is the ratio of Total Debt (Current + Long Term) for the CY
over Total Capital Equity for the CY.

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Times Interest Earned Ratio
The Times Interest Earned Ratio is the ratio of Earnings before Interest and Tax
(EBIT) for the CY over Interest Expense for the CY.
Operating Margin Ratio
The Operating Margin Ratio is the ratio of Operating Income for the CY over Sales for
the CY.
EBIT Ratio
The Earnings before Interest and Taxes (EBIT) Ratio is the ratio of EBIT for the CY
over Sales for the CY.

EBT Ratio
The Earnings before Taxes (EBT) Ratio is the ratio of EBT for the CY over Sales for
the CY.
ROA Ratio
The Return on Assets (ROA) Ratio is the ratio of (Net Income + After – Tax Interest
Cost) for the CY over Average Total Assets for the CY.
ROTC Ratio
The Return on Total Capital (ROTC) Ratio is the ratio of (EBIT) for the CY over
Average (Total Debt + Shareholders Equity) for the CY.

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ROE Ratio
The Return on Equity (ROE) Ratio is the ratio of (EBT) for the CY over Average
(Shareholders Equity) for the CY.
Market Capitalisation
Market Capitalisation is the Product of the number of issued ordinary share capital
scripts multiplied by the ASX listed share value as at a certain date.
EPS Ratio
The EPS Ratio is calculated dividing net earnings of the corporation as 30th June 2005
by the number of diluted shareholdings
PE Ratio
The PE ratio is calculated by dividing the share price of the corporation as 30th June
2005 by the EPS Ratio
5.9 DEPENDENT VARIABLES
The dependent variables used in the study are:


The level of Institutional Shareholding



The level of Non – Institutional Shareholding



The level of Institutional Voluntary Disclosure



The level of Non – Institutional Voluntary Disclosure

The dependent variable is that which on regression will fluctuate dependent on the
movement of the independent variable/s although the value of the dependent variable
can be altered. The dependencies of such variables are that levels of institutional
ownership of entities and influence on corporate governance disclosure compliance
that is bought to bear by such levels of ownership has association with the levels of

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financial performance that is outlined by the movement independent variables, i.e. the
higher levels of performance will see generally see an enhanced level of Institution
ownership of entities.
Corporate Ownership Structure in Australian Companies is a combination of a variety
of Individuals, i.e. Mum and Dad small portfolio ownerships, larger family controlling
ownerships, i.e. Murdoch, Packer and Lowy type families, institutional investors such
as banks, insurance, investment and superannuation companies, i.e. Westpac, AMP,
Macquarie Bank, AXA and also Corporate Institutionally controlled shareholders,
which in turn may have shareholdings in other Corporations. Governments also
through various instrumentalities exercise influence in such companies as Telstra and
Qantas, although over the past years and into the future, governments have sought to
sell down these interests citing that governments have no place in running large
corporations, rather they need to be concentrating on the core process of government.
The corporate ownership structure and the influences on performance and corporate
governance in this research will be limited to the top 20 shareholders.
If a corporation is an institutionally controlled share register which is the first
dependent variable, that is a substantial percentage of the top 20 shareholders are those
which are catagorised as being institutional shareholders, that corporation will be
denoted with an I, the aggregate percentage of the shareholding will be used.
If a corporation is a non - institutionally controlled share register which is the second
dependent variable that is a substantial percentage of the top 20 shareholders, that
corporation will be denoted with an NI, the aggregate percentage of the shareholding
will be used.
The third and fourth dependent variable as above to be used is that of the level of
voluntary disclosure, being measure as follows:
If the company complies with ASX CGC Principles, Recommendations and
Guidelines, this will be denoted by 1;
If the company does not comply with ASX CGC Principles, Recommendations ands
Guidelines, this will be denoted as a 0.

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From a total possible score of 30, the level of voluntary disclosure is shown as a
percentage, i.e. 25/30 = .83
5.10 TYPE OF STUDY AND UNIT OF ANALYSIS
This study is a cross sectional study of Australian public listed companies with a welldeveloped stock market. The aim is to identify company specific, corporate
governance and independent variables that may influence the extent of voluntary
disclosures (dependent variables).
The unit of analysis in this study comprised Australian institutionally controlled and
non – institutionally controlled public companies listed on the ASX.
5.11 PARTIES RESPONSIBLE FOR DISCLOSURE
The parties responsible for corporate governance and informational disclosure are the
board of directors of the respective companies sampled.

5.12 FACTORS INFLUENCING THE DECISION TO DISCLOSE OR NOT
DISCLOSE
Apart from the mandatory disclosure requirements laid out in various legislation, i.e.
Accounting Standards, The Corporations Act (2001) and the ASX CGC Principles and
Guidelines, there are reasons to disclose or not disclosure on the basis of signalling. If
signals were good then it would be advantageous to disclose, similarly if signals were
bad then it would be in the best interests of the corporation to suppress such
information where possible.
5.13 POPULATION AND SAMPLE
The population consists of 1813 as (05/05/2006) ASX listed public companies, and
sample selected are companies that are owned substantially by institutional type
shareholders and those companies that are controlled by non – institutional

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shareholders. For the purposes of this study the sample utilised was taken from the
listing of top 20 shareholders and substantial shareholders. Of the sample companies,
subjects were selected from varying and diverse sectors within Australian Industry.
5.14 SAMPLE SIZE
The sample size used for the study was selected as a weighted percentage of the
population, e.g. Materials 472/1813 = 26.03% by using this percentage a percentage of
26.03 % of 472 = 122.86 rounded to an even number of 122 and so on.
Corporations were then assessed as being substantially controlled by financial
institution shareholders or by substantially controlled by non – institutional
shareholders
5.15 SAMPLING METHOD
Of the sample companies, subjects were selected from varying and diverse sectors
within Australian Industry. The sampling method used to extract a sample was
‘stratified random sampling’ which is defined as ‘a probability sampling design that
first divides the population into meaningful, non overlapping subsets, and then
randomly choosing the subjects from each subset. Cavana (2001 p.463)
5.16 SCORING THE DISCLOSURE ITEMS
The disclosure items are scored by assigning a 0 for non - conformance with the ASX
CGC Principles and Guidelines or a 1 for conformance with the Principles and
Guidelines.
5.17 DISCLOSURE INDEX
The disclosure index is calculated as percentage of positive scores being that number
out of a possible score of 30.

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5.18 DATA COLLECTION
The author has personally constructed a database using Microsoft Access. The
information entered into the database was collated from Company 2005 Annual
Reports. The database contains quantitative and qualitative data, which is keyed in and
analysed, these are:
-

Financial Statement Analysis

-

Ratio Calculation

-

Corporate Governance Score Calculation
5.19 TREATMENT OF OUTLIERS

During the collection of Data, there are always invariably outliers that arise that require
attention. It was determined through initial experimentation on the data that leaving the
outliers in had a causal masking effect of the true distribution of variables,
alternatively removing the outliers complete created the effect of overly distributing
the variables across the spectrum. An alternative method to deal with outliers is a
process called ‘Transformation’. Transformation is a process of converting outlier/s
into a Log (10) factorial, which has the effect of correcting the skewness of the
distribution that extreme outliers creates and brings the observation closer to normal
distribution curvature. Looking very closely at analysis made on the advantages and
disadvantages of both methods, it was decided that adopting the transformation method
rather than the deletion method displays the variable in a more factual manner.
Transformation provides for even though the observation/s are outside of the normal
distribution of other variables, that it is recognized that the outlier data is part of the
overall sample and should be included as such at a comparative value that equates to
the value of the outlier/s. Selection of what variable data constitutes an outlier/s is
determined by the use of a scatter graph, from which outlier/s are isolated and
transformed. To apply a strict definition of an outlier; Hair et al (1995) state:
In strict terms, an observation that has substantial difference between the actual value
for the dependent variable and the predicted value. Cases that are substantially
different, whether in regard to the dependent or independent variables are often termed
outliers as well. In all instances, the objective is to identify observations that represent

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inappropriate representations of the population from which the sample is drawn, so that
they may be discounted or even eliminated from the analysis as unrepresentative.
Hair, J.F, Anderson, R.E, et al (1995) also provide a definition for transformation
stating:
A variable may have an undesirable characteristic, such as non-normality, that detracts
from the ability of the correlation coefficient to represent the relationship between it
and another variable. A transformation, such as taking the logarithm or square root of
the variable, creates a new variable and relationship. Transformations may be applied
to either the dependent or independent variables, or both. The need and specific type of
transformation may be based on theoretical reasons (such as transforming a known
non-linear relationship) or empirical reasons (identified through graphical or statistical
means).

Figure 5.2 Data Variable Scatter Graph
Data Variable Scatter Graph
250.000
200.000
150.000

Series1

100.000
50.000
0.000
0

50

Source: Sample Data Used in this study

100

150

200

250

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5.20 OBSERVED DEPENDENT AND INDEPENDENT VARIABLE
RELATIONSHIPS / ASSOCIATIONS

Of all the relationships between dependent and independent variables that could be
established, it is imperative that only those relationships that are logically associated to
produce both a relevant and substantiated outcome. It serves little or no purpose
whatsoever attempting to associate variables that do not naturally occur with each
other.
5.21 DESCRIPTIVE ANALYSIS
Descriptive univariate analysis entails estimating the occurrence of some phenomenon
within a population. The purpose is to determine whether the entity is common or rare;
how frequently it occurs, or with what intensity or severity; or, whether it is present in
vast quantities or limited amounts. The principal tools for answering such questions are
measures of central tendency. In almost all numeric applications, the mean is used.
In some instances, dispersion is also a concern, but distributional issues generally play
a supporting role to issues of elevation when description is the research role. However,
dispersion plays the lead role when univariate analysis sets the stage for multivariate
analysis.
Aneshensel (2004)
Descriptive analysis encompasses inferential statistics, which is the generalization
from a sample to a population where all data is not known exactly. Sample description,
which is the most common use of descriptive univariate analysis, where descriptions
usually have two components, central tendency and dispersion, often expressed as
means and standard deviations.

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5.22 HYPOTHESIS TESTING
The testing of the hypothesis will entail the correlation of:
Institutionally Controlled Shareholdings  Corporate Governance Score  Level of
Voluntary Disclosure Compliance Financial Performance
Non-Institutionally Controlled Shareholdings  Corporate Governance Score 
Level of Voluntary Disclosure Compliance  Financial Performance
The hypotheses outlined in section 4.1 shall be tested by the use of statistically testing
data collected. It is anticipated that testing will confirm H1a, H2a and Reject H1o and
H2o simply due to the empirical literature that suggests that this is normally the
expected outcome.
5.23 UNIVARIATE ANALYSIS
As Anehensel (2004) states ‘Data Analysis begins with univariate analysis’. Univariate
analysis is first and foremost the assessment of the distributional properties of a
variable. Univariate analysis serves two broad purposes: (1) description and (2)
preparation for multivariate analysis. These functions correspond to the two primary
forms of univariate analysis, the assessment of central tendency and dispersion, or
convergence or divergence. Although descriptive research often focuses on identifying
what is most characteristic of a set of observations, variation from this typical value
usually is the most important concern with regard to subsequent multivariate analysis.
Most research has an explanatory focus, and univariate serves primarily as a precursor
to multivariate analysis. When univariate analysis is preliminary to multivariate
analysis, dispersion takes centre stage. This analysis often uncovers at least some
technical problems that need to be resolved before other forms of analysis can proceed.
The most critical of these issues concerns the degree of variation present for the
variables that comprise the theoretical model.

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THE DISTRIBUTION OF A VARIABLE
The distribution of a variable is an array of each and every one of its values across all
units of analysis.
CENTRAL TENDENCY
Central tendency refers to the typical, to a value that embodies the characteristics or
qualities of a set of values so fully as to be representative of set. Measures of central
tendency summarise the entire distribution of values as one single quantity or quality
that can be thought of as the average value. Central tendency is sometimes referred to
as elevation because it indicates whether numeric scores are high or low. There are
numerous indicators of central tendency, though discussion is limited to the three most
frequently used statistics: the mode (frequency), the median (middle value) and mean
(average value). The choice of a measure of central tendency depends upon the level of
measurement (nominal, ordinal, interval or ratio) of the variable and the shape of its
distribution.
DISPERSION
The mode, the median and the mean are alike in that each identifies the centre of a
distribution. When a distribution is symmetrical, balanced around a central value, these
three measures of central tendency will have highly similar if not identical values.
Distributions that have similar centres, however, may nevertheless exhibit very
different shapes; likewise distributions with different centres may have the same shape.
The spread of distribution is a separate dimension from its centre. To describe a
distribution, we need to specify both its centre and the degree to which values cluster
around this centre; this is known as the range and standard deviation.
5.24 MULTIVARIATE ANALYSIS
As Abdi (2003) states multivariate analysis comprises a set of techniques dedicated to
the analysis of data sets with more than one variable. Several of these techniques were
developed recently in part because they require computational capabilities of modern
computers. Also as stated by Abdi, because most of them are recent, these techniques

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are not always unified in their presentation, and the choice of the proper technique for
a given problem is often difficult.
The different methods of Multivariate Analysis being:
Interval or ratio level of measurement: principle component analysis (PCA)
Exploratory Factor Analysis
The goal of PCA is to decompose a data table with correlated measurements into a new
data set of uncorrelated (i.e. orthogonal) variables.
As per Cooksey (1996) the purpose of Exploratory Factor Analysis is to summarise
and represent the interrelationships amongst a set of variables using a much smaller
number of composite variates. Principle Components Analysis attempts to accomplish
this task explicitly combining variables in a weighted fashion to form ‘components’
which account for the maximum amount of variability in the variables scores. Virtually
all exploratory factoring methods produce similar types of output statistics:
‘Eigenvalues’
(these indices summarise how much variance each factor explains out of total
available).
As further stated by Cooksey p.82, advantages of Exploratory Factor Analysis include;
providing a class of techniques useful for condensing many variables into smaller,
more manageable and more reliable subset of dimensions or factors. Factor Analysis
utilises all of the available correlational information amongst a set of variables and the
various rotational procedures can be used to provide the simplest structure possible for
interpreting a solution.
Similarity or distance: multidimensional scaling (MDS), additive tree, and cluster
analysis
These techniques are applied when the rows and the columns of the data tables
represent the same units and when the measure is a distance or a similarity. The goal of
the analysis is to represent graphically these distances or similarities. As per Cooksey
(1996 p.86) the purpose of Cluster Analysis is to form relatively homogeneous groups
of either variables (similar to Factor Analysis) or more commonly, observed

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respondents in a sample based on the extent similarity or dissimilarity between them.
Cluster analysis refers to a collection of statistical procedures designed to cluster
respondents or variables into homogenous subsets of an entire sample. A cluster is a
grouping of variables or respondents formed in such a way that members of a
particular cluster are more similar to (or correlate more highly with) each other than
with any other respondents (variables) in other clusters.
Multidimensional Scaling and Correspondence Analysis
The purpose of multidimensional scaling is to explore the dimensionality of a set of
variables whose nature can vary from simple attitude ratings to explicit assessments of
similarity or preference. The purpose of correspondence analysis is to accomplish a
similar task to multidimensional scaling in the context of contingency tables by
showing how two category systems relate to each other.
Multiple linear regression analysis (MLR)
In MLR, several independent variables (which are supposedly fixed or equivalently
measured without error) are used to predict with a least squares approach one
dependent variable. If the independent variables are orthogonal, the problem reduces to
a set of univariate regressions. When the independent variables are correlated, their
importance is estimated from the partial coefficient of correlation.
Multivariate analysis of variance (MANOVA)
In MANOVA the independent variables have the same structure as in a standard
ANOVA and are used to predict a set of Dependent Variables. MANOVA computes a
series of ordered orthogonal linear combinations of the Dependent Variables (i.e.
factors) with the constraint that the first factor generates the Largest F if used in an
ANOVA.
As Cooksey p.161 states, the purpose of MANOVA is to compare groups of
respondents classified according to one or more grouping (independent) variables on
two or more dependent variables simultaneously. Analysis can easily be extended to

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include n – way factorial MANOVA designs and multivariate analysis of covariance
designs.
Predictable a nominal variable: discriminant analysis (DA)
DA, which is mathematically equivalent to MANOVA, is used when a set of
independent variables are used to predict the group to which a given unit belongs
(which is a nominal dependent variable)
Fitting a model: confirmatory factor analysis (CFA)
In CFA, the researcher first generates one (or a few) model(s) of an underlying
explanatory structure (i.e. a construct) which is often expressed as a graph, and then
the correlations between the dependent variables are fitted into this structure.
Multiple factor analysis (MFA)
MFA combines several data tables into a single analysis. The first is to perform a PCA
of each table. Then each data is normalized by dividing all entries of the table of the
first eigenvalue table of its PCA. This transformation akin to the univariate Z – score
equalizes the weight of each table in the final solution and therefore makes possible the
simultaneous analysis of several heterogeneous data tables. As is outlined by Cooksey
p.81, the purpose of Exploratory Factor Analysis is to summarise and represent the
interrelationships amongst a set of variables using a much smaller of composite
variates. Principal Components Analysis attempts to accomplish this task by explicitly
combining variables in a weighted fashion to form ‘components’ which account for the
maximum amount of variability in the variables’ scores. As Cooksey p.82 explains,
virtually all factoring methods produce similar types of output statistics: ‘eigenvalues’
(these indices summarise how much variance each factors explain out of the total
available; if they are plotted against the number of factors, they give a rough indication
as to the number of factors to interpret.

136

Communalities
Communalities as Cooksey p.82 points out are indices that summarise how much
variance in each variable are shared in common with the variance of the set of factors
in the final solution. A ‘factor pattern matrix’ (a set of standardized regression weights
for predicting variable scores on the basis of the factors identified in the final solution.
A ‘factor structure matrix’ (a set of Pearson Correlations between each variable and
each factor in the final solution). A Matrix of ‘factor correlations’ shows the estimated
degree of correlation which would exist between the factors in the correlation.
Inter-Item Correlation Matrix
The correlation matrix gives the degree to which items co vary in a standardized form
(as a standard score known as a correlation co-efficient). These co variances that have
been transformed by being standardized around a SD of 1.0

R - Square
As per Cavana et.al (p.435) R – Square value (also called the co-efficient of
determination) is the square of the correlation co-efficient (R). It is the proportion of
the total variation around the mean that is explained by the regression model. To
explain in another way, R2 is the percentage movement in the dependent variable and
as explained by movements of the independent variables.
F - Test
As per Cavana et.al (p.456) the F – test is a statistical test based on the analysis if
variances, that is used to test for differences in the means between sample groups. As
per Cooksey (1996 p.153) the F – test is also referred to as the ‘omnibus F – test’. As
further stated by Cavana et.al (p.435) if the significance or p-value of the F – statistic
is small (smaller than, say, .05 or the specified alpha level), then the independent
variables collectively do a good job explaining the variation in the dependent variable.
If the significance value of F is larger than .05 or the specified alpha level, then the

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independent variables as a group do not explain the variation in the dependent variable
to the level of confidence that may be required.
T – Test
As per Cavana et.al (p.463) the T – test is a statistical test that can be used to test the
mean difference in a variable between two groups (for small sample sizes). As well per
Cavana et.al (p.435) the T – statistic in a regression model can help determine the
relative importance of each independent variable in the regression model. Generally if
a co-efficient has a t – value well below -2 or above +2, then keep that independent
variable in the equation. If the p – value is less than .05 or the specified alpha level, it
can be concluded that the co-efficient is significantly different from and hence can
keep the variable in the equation.
Significance Level
As per Cavana et.al (p.462) the significance level is the probability of rejecting the null
hypothesis when it is true, also called the critical value, and the probability of this
occurring is called (Alpha) or Cronbach’s alpha. As well per Cavana et.al (p.463) the
error made when the null hypothesis is rejected when it is true is called a Type I error.
The accepted significance level for business purpose is .05, the lower the factor below
.05 enhances the significance level.
Confidence Interval
As per Cavana et.al (p.454) the confidence interval is the probability estimate of how
much reliance can be placed on the findings; the usual accepted level of confidence in
social science research is 95 percent. As well per Cavana et.al (p.410) as stated, the
mean and standard deviation are the most widely used descriptive statistics. The
standard deviation, in conjunction with the mean, is a very useful tool because of the
following statistical rules, in a normal distribution.
1. Most observations (more than 99%) fall within three standard deviations of the
average or mean.

138

2. More than 95% of the observations are within two standard deviations of the
mean.
3. About 68% of the observations are within one standard deviation of the mean.
5.25 SUMMARY
Chapter five outlined the essence data analysis, much emphasis has been placed in
this chapter on multivariate analysis given that MVA is such an important tool in the
analysis, explanation and prediction of numbers generated by this paper, but to also
gain an in depth understanding for subsequent PHD analysis. The chapter outlined
descriptive analysis which, are measures that outline central tendency data that include
mean, median, skewness, kurtosis and standard deviation. These measures help
determine the uniformity of distribution of data under a normal distribution curve,
which assists also in identifying outliers in data.
Univariate analysis is an assessment process that as fore mentioned prepares data for
multivariate analysis. Involved is the assessment of dispersion, so that only relevant
data is used in the multivariate analysis stage. It can be seen that descriptive analysis
and univariate analysis go closely with each other to achieve an acceptable data pool
for later analysis. As fore mentioned multivariate analysis is possibly the more relevant
analysis to be carried out, although cannot be successfully achieved with logical unless
descriptive and univariate analysis is carried out before hand. In the more common
complex analysis that is common place in modern decision making, it is multivariate
analysis which carries out the necessary computations that frequently required. It is not
to often whereby only singular variables are interacting with each other, more common
place is the interaction of multiple independent and dependent variables, hence
Multivariate analysis which as shown can take a number of different formats
depending on the application required.

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CHAPTER 6
RESULTS OF EMPIRICAL RESEARCH RELATING TO CORPORATE
GOVERNANCE DISCLOSURE AND FINANCIAL PERFORMANCE

140

6.0 INTRODUCTION

Chapter six presents results of empirical research and analysis carried out on data
collected and collated throughout this dissertation. The results being of a deductive
nature are in keeping with a positive paradigm. The thrust of an explanation, being
deduced from the process of first developing a theory, formulating hypothesis, collect
and analyse data and then precede to the explanation drawn from that data ,Cavana
et.al (p.36). The results of the analysis are displayed in descriptive, univariate,
multivariate and multiple regression analysis. Definitive results are the culmination of
all prior research which has been carried out to either accept or reject the hypothesis
outlined in chapter four.
Parametric Analysis
To measure the association bewteen variables as per Appendix C. Outlined are both
descriptive and multivariate analysis to test association, the closer the coefficient is to
1.00, the stronger the association between dependent and independent variables.
As for the associations between the variables, the paired independent sample t – test
was conducted and for nominal independent variables that comprised more than two
groups, the analysis (ANOVA) was undetaken.
The t – test produces two versions of t – value: one is equal variance which assumes
the variance in two populations are equal and the other is unequal variance, which does
not. Thus, the Levene test ( a test for homogeneity of variance) is used as a benchmark
in deciding which t – value to consider in rejecting the null hypothesis. If the F – value
in the Levene test is not significant (p>0.05), it means that the equal variance
assumption is approximately met and hence, the equal variance t – value is used to test
the significance of association between the dependent and the nominal independent
variable. (see Kinnear and Gray, 1995: p.93 and Norusis, 1995: p.261 – 2)
The reason for adopting ANOVA rather than the multiple t – test for the industry
variable was because the probability of at least one test showing significance even if
the null hypothesis is true is higher than the conventional significance level when the
latter method is used ( Kinnear and Gray, 1995: p.98).

141

However, to undertake the ANOVA procedure ( and also multiple regression later, the
data needs to fulfil two conditions: each group must be a random sample from a
normal distribution and the variance from all groups must be equal. The first condition
was checked by a visual inspection using histograms and normal probablity plots for
each of the groups, while the Levenes test ( test for equality of variance ) was
conducted to check for the second condition. The F – probability value in ANOVA
indicates if the F ratio is statistically significant. In other words, the smaller the value
of the F probablity, the stronger the evidence against the null hypothesis.
6.1 UNIVARIATE/DESCRIPTIVE STATISTICS

Summary Descriptive/Univariate data/graphs and Detailed Descriptive/Univariate data
are data which relate to all tested independent and dependent variables. The mean
scores of collected data have been collated in a summary result table together with a
corresponding graph of this data. The graph in particular outlines with a high degree of
clarity, the peaks and troughs of variables per sector classifications used. When
perusing the graph it is noted that that generally institutional entities fair much better
than corresponding non institutional entities.
6.2 MULTIVARIATE ANALYSIS

The purpose of multivariate analysis is to determine the level of correlation and
interaction between variables. The measures used to determine correlation/interaction
levels in this study are factor analysis, communalities and inter-item correlation matrix
for institutional and non institutional entities and related sectors being analysed. It was
felt that both multivariate analysis tests were most appropriate to use, because of the
fact that both Univariate/Descriptive and multiple regression analysis sufficiently test
collected data for hypothesis testing and the purpose of the selected multivariate tests
was purely to test correlation and interaction levels of the variables. As previously
explained in Factor analysis using ‘eigenvalues’ (these indices summarise how much
variance each factors explain out of the total available; if they are plotted against the
number of factors, they give a rough indication as to the number of factors to interpret.
Communalities are indices that summarise how much variance in each variable is
shared in common with the variance of the set of factors in the final solution. A ‘factor

142

pattern matrix’ (a set of standardized regression weights for predicting variable scores
on the basis of the factors identified in the final solution. Inter-item correlation matrix
states the correlation matrix gives the degree to which items co vary in a standardized
form (as a standard score known as a correlation co-efficient). These co variances have
been transformed by being standardized around a SD of 1.0. Outlined which
components in the final analysis are the greater contributors to the explanatory process
and to what degree as determined by the assigned ‘eigenvalue’. The eigenvalues
cumulative percentages for components 1- 6 are as follows in the table below.
Table 6.1 Factor Analysis Cumulative Percentages
Cumulative Percentage

Sector

78.690%

Institutional Miscellaneous

87.153%

Institutional Materials

83.661%

Non Institutional Miscellaneous

82.425%

Non Institutional Materials

Therefore in table 6.1 it shown an average explanatory power for the top 6 component
variables for institutional controlled entities of 82.922% and for non institutional
controlled entities of 83.043%. Therefore it is concluded that the independent variables
marginally do a better job of explaining the movement in the dependent variables, in
non institutionally controlled entities than that of institutionally controlled entities.
Analysing communiailities for the variuous institutionally controlled and non
institutionally controlled entities, it is found that the main portion are extractions.
Communalities as Cooksey p.82, 4.27 (p.145) points out are indices that summarise
how much variance in each variable are shared in common with the variance of the set
of factors in the final solution. Therefore looking at the extraction rates for the various
studies, it is seen that in varying degrees for both institutionally controlled and non
institutionally controlled entities for the various sectors, the various independent and
dependent variables share in common and interact with each other in the final solution.
The last multivariate analysis utilised is the inter-item correlation matrix. The
correlation matrix, as explained previously outlines as a factor between -1 and + 1 as to
how much an independent or dependent variable correlates with each other when

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performing regression analysis toward a final solution. In essence to select variables
that correlate highly with each other in a multiple regression, it is prudent to run an
inter-item correlation matrix before hand, then run regressions.

6.3 MULTIPLE REGRESSION ANALYSIS

The tables and corresponding graphs are consistent with variables, it was thought
appropriate that the various combinations of predictor and criterion variables be shown
both seperately to show the individual effects and influences and variables along with
an over all summary. By showing results in this fashion enables the reader to assess
what tests are more influencial than others in confirming the acceptance or rejection of
stated hypothesis as set out in Chapter four. The strength of taking this particular
approach is that if a particular test is required by a reader rather than using all
extensive tests given, the reader is able to select one particular test, that maybe
identified as more applicable than others to assist in decision making purpose.By
observing the overall summary though it is much to correlate the information and make
judgements about individual sectors by theoretically applying all the tests, or
alternatively use the information generated in this study for decision making purposes.
Consistent with hypothesis outlined in Chapter four it is assumed that Institutionally
Controlled Entities will have a greater level of Corporate Governance voluntary
disclosure, which in turn lead to superior financial performance levels. In the results
stage of this study and the accompanying graphs, data is divided into; Institutional
Materials; Non – Institutional Materials in graphs; Institutional Miscellaneous Sectors
in graphs and Non – Institutional Miscellaneous Sectors in graphs. During my results
stage it assumed that if individual or collective Institutional Sectors have greater
significance than Non – Institutional Sectors that this will constitute an acceptance of
H1a and H2a and rejection of H1o and H2o. If individual or collective Non
Institutional Sectors have greater significance than Institutional Sectors this will
constitute an acceptance of H1o and H2o and rejection of H1a and H2a. If no
signficant difference in results for either Institutional or Non – Institutional Sectors this
will constitute an acceptance of H1o and H2o and rejection of H1a and H2a. The
method in which is preferable to present results is to use tables or graphs individually

144

but to both concurrently each other, so that if the reader is more comfortable reading
either tables or graphs, then both are supplied. Also on a collective basis show the
sectors summarised in one table and graph or individually with the combination of the
selected independent and dependent variables. To be able to narrow analysis of data
down to a particular sector shows which sector/s has the highest/ lowest means where
ever applicable, lowest standard deviations, highest T – score, highest r2 and the
lowest probability factor below .05 being the level of significance, which is defined as
‘alpha’ being the probability of making a Type I error, which is the error made when
the null hypothesis is rejected when it is true. When assessing whether to either reject
or accept stated hypothesis, it is felt essential that also the generalisability; being ‘ the
applicability of research findings in one setting to others’, reliability; ‘ the internal
consistency and stability over time of the measuring instrument’ and validity;
‘evidence that the instrument, technique or process used to measure a concept does
indeed measure the intended concept, Cavana et al (2001).
Determining an outcome using data collected and collated through the multiple
regression process, it was found that generally in conjunction for the reasons outlined
in those hypothesis as per Chapter four.
The results as to as to voluntary disclosure compliance should also be read in
conjunction with Table 6.2 and Figure 6.1 these table and graph show per each
recommendation the levels of voluntary disclosure compliance per sector and out
rightly support the hypothesis that voluntary disclosure compliance is higher in
Institutionally controlled entities than that of Non institutionally controlled entities.
See Appendix D for multiple regression tables.

145

Table 6.2: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
per Sector
CLASSIFICATION

INSTITUTIONAL
MATERIALS

INSTITUTIONAL
MISCELLEANEOUS

1.1
2.1
2.2
2.3
2.4
2.5
3.1.1
3.1.2
3.2
3.3
4.1
4.2
4.3
4.4
4.5
5.1
5.2
6.1
6.2
7.1
7.2.1
7.2.2
7.3
8.1
9.1
9.2
9.3
9.4
9.5
10.1
OVERALL MEAN
OVERALL SD

93.2%
75.0%
70.5%
95.5%
63.6%
93.2%
93.2%
93.2%
81.8%
86.4%
97.7%
81.8%
63.6%
86.4%
93.2%
88.6%
90.9%
93.2%
95.5%
88.6%
97.7%
97.7%
97.7%
86.4%
95.5%
70.5%
93.2%
93.2%
90.9%
93.2%
88.03%
9.09%

98.2%
89.3%
76.8%
94.6%
69.6%
89.3%
98.2%
98.2%
83.9%
87.5%
89.3%
85.7%
73.2%
85.7%
89.3%
85.7%
87.5%
94.6%
94.6%
83.9%
96.4%
94.6%
85.7%
83.9%
92.9%
75.0%
96.4%
96.4%
87.5%
87.5%
88.38%
7.50%

NON
INSTITUTIONAL
MATERIALS
82.1%
46.4%
57.1%
89.3%
23.8%
77.4%
85.7%
85.7%
75.0%
75.0%
86.9%
57.1%
35.7%
58.3%
75.0%
70.2%
72.6%
86.9%
84.5%
72.6%
82.1%
82.1%
71.4%
66.7%
82.1%
36.9%
79.8%
81.0%
72.6%
78.6%
71.02%
16.70%

NON
INSTITUTIONAL
MISCELLANEOUS
96.8%
51.6%
41.9%
77.4%
41.9%
71.0%
96.8%
96.8%
87.1%
74.2%
90.3%
71.0%
61.3%
67.7%
74.2%
71.0%
67.7%
96.8%
74.2%
87.1%
90.3%
96.8%
74.2%
77.4%
100.0%
54.8%
90.3%
90.3%
74.2%
83.9%
77.63%
16.19%

Read in conjunction with Appendix B
Table 6.2 and accompanying statistical tables outlines the levels of compliance for
each of the 30 recommendations. As can be noted the compliance levels are higher for
institutional controlled entities as opposed to non-institutionally controlled entities.

Table 6.3: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Paired Samples Statistics for Institutional and Non Institutional
Materials Dominated Entities
Paired Samples Statistics

Pair 1

Inst_Materials
Non_Inst_Materials

Mean
.880367
.710200

N
30
30

Std. Deviation
.0993557
.1670072

Std. Error
Mean
.0181398
.0304912

146

Table 6.3 Paired Samples Statistics show Institutional Dominated a high means of
.8804 with a lower standard deviation .099, supporting higher voluntary disclosure
compliance than that of the Non Institutional Materials counterpart showing a mean of
.7102 and standard deviation of .1670.
Table 6.4: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Paired Samples Correlations for Institutional and Non Institution al
Materials Dominated Entities
Paired Samples Correlations
N
Pair 1

Inst_Materials &
Non_Inst_Materials

Correlation
30

.924

Sig.
.000

Table 6.4 Paired Samples Correlations for Institutional and Non Institutional Materials
support a high level of correlation between the samples data sets used in the analysis.
Table 6.5: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Paired Samples Statistics for Institutional and Non Institutional
Miscellaneous Dominated Entities
Paired Samples Statistics

Pair 1

Inst_Miscellaneous
Non_Inst_Miscellaneous

Mean
.883800
.776333

N
30
30

Std. Deviation
.0754094
.1619426

Std. Error
Mean
.0137678
.0295665

Table 6.5 Paired Samples Statistics highlights the very high mean for Institutional
Miscellaneous (.8838) and low standard deviation level (.0754) as compared with the
Non Institutional Miscellaneous counterpart showing a mean of (.7763) and standard
deviation of (.1619).

147

Table 6.6: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Paired Samples Correlations for Institutional and Non Institutional
Miscellaneous Dominated Entities
Paired Samples Correlations
N
Pair 1

Correlation

Inst_Miscellaneous &
Non_Inst_Miscellaneous

30

.791

Sig.
.000

Table 6.6 Paired Samples Correlations for Institutional Miscellaneous and Non
Institutional Miscellaneous Entities show a medium correlation between ASX CGC
voluntary disclosure compliance of (.791).
Figure 6.1 shows in graphical form where the compliance levels overlap and at what
levels. It is noted that institutionally controlled entities show higher percentages of
overlap than those of non-institutionally controlled entities.
Figure 6.1: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
per Sector
120.00%

100.00%

80.00%
INSTITUTIONAL MATERIALS
INSTITUTIONAL MISCELLEANEOUS
NON INSTITUTIONAL MATERIALS
NON INSTITUTIONAL MISCELLANEOUS

60.00%

40.00%

20.00%

0.00%
1
1.

2
2.

4
2.

1
1.
3.

2
3.

1
4.

3
4.

5
4.

2
5.

2
6.

1
2.
7.

3
7.

1
9.

3
9.

O

5
9.

V

L
AL
ER

N

EA

M

148

Figure 6.2: ASX CGC Principles and Guidelines Voluntary Levels of Compliance
Histogram for Institutional Dominated Materials Entities
12

10

Frequency

8

6

4

2

Mean =0.880367
Std. Dev. =0.0993557
N =30

0
0.6000

0.8000

1.0000

Inst_Materials

Table 6.7: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Descriptive Statistics for Institutional Dominated Materials Entities
Descriptive Statistics
N
Inst_Materials
Valid N (listwise)

Mean

Statistic
30

Statistic
.880367

Skewness
Statistic
-1.377

Std. Error
.427

Kurtosis
Statistic
.950

Std. Error
.833

30

The Histogram figure 6.2 shows the frequencies and dispersion of Institutional
Dominated Materials entities for compliance levels. As is shown in the descriptive
table 6.7 against a normal distribution curve that the positioning of compliance levels
predominately fall under the distribution curve with a high left hand skewness (-1.377)
and generally a flat right hand kurtosis (.950).

149

Figure 6.3: ASX CGC Principles and Guidelines Voluntary Levels of Compliance
Histogram for Institutional Dominated Miscellaneous Entities

12

10

Frequency

8

6

4

2

Mean =0.8838
Std. Dev. =0.0754094
N =30

0
0.6000

0.8000

1.0000

Inst_Miscellaneous

Table 6.8: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Descriptive Statistics for Institutional Miscellaneous Dominated
Entities
Descriptive Statistics
N
Inst_Miscellaneous
Valid N (listwise)

Mean

Statistic
30

Statistic
.883800

Skewness
Statistic
-.773

Std. Error
.427

Kurtosis
Statistic
.279

Std. Error
.833

30

The Histogram figure 6.3 shows the frequencies and dispersion of Institutional
Dominated Miscellaneous entities for compliance levels. As is shown in the
descriptive statistics table 6.8 against a normal distribution curve that the positioning
of compliance levels predominately fall under the distribution curve with as slight left
hand skewness (-.773) and generally a flat kurtosis (.279).

150

Figure 6.4: ASX CGC Principles and Guidelines Voluntary Levels of Compliance
Histogram for Non Institutional Dominated Materials Entities

12

10

Frequency

8

6

4

2

Mean =0.7102
Std. Dev. =0.1670072
N =30

0
0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

Non_Inst_Materials

Table 6.9: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Descriptive Statistics for Non Institutional Materials Dominated
Entities
Descriptive Statistics
N

Mean

Statistic

Statistic

Non_Inst_Materials

30

Valid N (listwise)

30

.710200

Skewness
Statistic

Kurtosis

Std. Error

-1.433

.427

Statistic

Std. Error

1.461

.833

The Histogram figure 6.4 shows the frequencies and dispersion of Non- Institutional
Dominated Materials entities for compliance levels. As is shown in the descriptive
statistics table 6.9 against a normal distribution curve that the positioning of
compliance levels generally fall under the distribution curve with a high left hand
skewness (-.1.433) and generally a peaked kurtosis (1.461).

151

Figure 6.5: ASX CGC Principles and Guidelines Voluntary Levels of Compliance
Histogram for Non Institutional Dominated Miscellaneous Entities

10

Frequency

8

6

4

2

Mean =0.776333
Std. Dev. =0.1619426
N =30

0
0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

Non_Inst_Miscellaneous

Table 6.10: ASX CGC Principles and Guidelines Voluntary Levels of Disclosure
Compliance Descriptive Statistics for Non Institutional Miscellaneous Dominated
Entities
Descriptive Statistics
N
Non_Inst_Miscellaneous
Valid N (listwise)

Mean

Statistic
30

Statistic
.776333

Skewness
Statistic
-.624

Std. Error
.427

Kurtosis
Statistic
-.170

Std. Error
.833

30

The Histogram figure 6.5 shows the frequencies and dispersion of Non- Institutional
Dominated Miscellaneous entities for compliance levels. As is shown in the
descriptive statistics table 6.10 against a normal distribution curve that the positioning
of compliance levels predominately fall under the distribution curve with a slight left
hand skewness (-.624) and generally a flat left hand kurtosis (-.170).
The following Paired Samples Tests show the level of significance and therefore
correlation between sample sector data sets being analysed.

152

Table 6.11: Paired Samples Test for Levels of Significance for Institutional
Materials and Non Institutional Materials Dominated Entities
Paired Samples Test

Paired Differences

Mean
Pair 1

Inst_Materials Non_Inst_Materials

.1701667

95% Confidence
Interval of the
Difference

Std. Deviation

Std. Error
Mean

.0843258

.0153957

Lower

Upper

T

.1386789

.2016544

11.053

df

Sig. (2-tailed)
29

.000

Table 6.11 outlines the level of compliance between Institutional dominated Materials
entities and Non Institutional dominated Materials entities as per data outlined Table
6.4. The high T – score 11.053 and the low significance factor .000 show convincingly
that Institutional Dominated Materials Entities are far more compliant that Non
Institutional Dominated Materials Entities.
Table 6.12: Paired Samples Test for Levels of Significance for Institutional
Miscellaneous and Non Institutional Miscellaneous Dominated Entities
Paired Samples Test

Mean
Pair 1

Inst_Miscellaneous Non_Inst_
Miscellaneous

.1074667

Paired Differences
Std. Error
Std. Deviation
Mean

.1122644

.0204966

T

df

5.243

29

Lower

Upper

.0655465

.1493869

Table 6.12 outlines the level of compliance between Institutional dominated
Miscellaneous entities and Non Institutional Materials Miscellaneous entities as per
data outlined Table 6.4. As noted that there is substantial evidence of the substantial
degree of compliance with ASX CGC recommendations in the Miscellaneous Sector.
The high T – score 5.243 and the low significance factor .000 show convincingly that
Institutional Dominated Miscellaneous Entities are far more compliant that Non
Institutional Dominated Miscellaneous Entities.

Sig. (2-tailed)

95% Confidence Interval
of the Difference

.000

153

The following set of tables outline the degree of correlation and significance of three
(3) selected financial ratio variables from the selection of variables utilised to
determine whether or not ASX CGC Voluntary compliance which has been shown to
be affected by shareholding mix has any bearing on financial performance.
Table 6.13: Paired Samples Statistics for Institutional Materials Dominated
Entities
Paired Samples Statistics

Pair 1
Pair 2
Pair 3

ROA
ROTC
ROTC
ROE
ROA
ROE

Mean
-.01540
-.02971
-.02971
.00971
-.01540
.00971

N
45
45
45
45
45
45

Std. Deviation
.183479
.189796
.189796
.253795
.183479
.253795

Std. Error
Mean
.027351
.028293
.028293
.037833
.027351
.037833

Table 6.13 Paired Samples Statistics outlines descriptive data on the three (3)
Institutional Materials Dominated Entities combinations of variables used and where
they lay in comparison with each other, showing relatively small standard deviations
for the recorded means.
Table 6.14: Paired Samples Correlations for Institutional Materials Dominated
Entities
Paired Samples Correlations
N
Pair 1
Pair 2
Pair 3

ROA &
ROTC
ROTC & ROE
ROA & ROE

Correlation

Sig.

45

.992

.000

45
45

.974
.980

.000
.000

Table 6.14 Paired Samples Correlations outlines Correlation data on the three (3)
Institutional Materials dominated entities combinations of variables used and where
they lay in comparison with each other, showing substantially high correlations
between the three (3) selected combinations being examined.

154

Table 6.15: Paired Samples Test for Institutional Materials Dominated Entities
Paired Samples Test

Paired Differences

Mean
Pair 1
Pair 2
Pair 3

ROA - ROTC
ROTC - ROE
ROA – ROE

Std. Deviation

Std. Error
Mean

.025027
.081191
.082410

.003731
.012103
.012285

.014311
-.039422
-.025111

95% Confidence
Interval of the
Difference
Lower
.006792
-.063815
-.049870

Upper
.021830
-.015030
-.000352

t

df

3.836
-3.257
-2.044

Sig. (2-tailed)
44
44
44

Table 6.15 outlines the strength of determining significance to test explanatory power
of the three (3) different Institutional Materials dominated entities combinations
utilised. As noted the Paired Sampled Test have been ranked according to levels of
significance below .05, with clearly by a substantial margin ranking both significance
and t – score that the superior combination is ROA – ROTC.
Table 6.16: Paired Samples Statistics for Non Institutional Materials Dominated
Entities
Paired Samples Statistics
Mean
Pair 1
Pair 2

Std. Deviation

Std. Error
Mean

ROA

-.19857

84

.286888

.031302

ROTC

-.23739

84

.362530

.039555

ROTC

-.23739

84

.362530

.039555

-.25794

84

.396336

.043244

ROA

-.19857

84

.286888

.031302

ROE

-.25794

84

.396336

.043244

ROE
Pair 3

N

Table 6.16 Paired Samples Statistics outlines descriptive data on the three (3) Non
Institutional Materials Dominated Entities combinations of variables used and where
they lay in comparison with each other, showing somewhat larger standard deviations
for the recorded means.

.000
.002
.047

155

Table 6.17: Paired Samples Correlations for Non Institutional Materials
Dominated Entities
Paired Samples Correlations
Pair 1

ROA & ROTC

Pair 2

ROTC & ROE

Pair 3

ROA & ROE

N
84

Correlation
.989

Sig.
.000

84

.957

.000

84

.945

.000

Table 6.17 Paired Samples Correlations outlines Correlation data on the three (3) Non
Institutional Materials dominated entities combinations of variables used and where
they lay in comparison with each other, showing substantially high correlations
between the three (3) selected combinations being examined.
Table 6.18: Paired Samples Test for Non Institutional Materials Dominated
Entities
Paired Samples Test

Paired Differences

Mean

Std. Deviation

Std. Error
Mean

95% Confidence Interval
of the Difference
Lower

Upper

t

Pair 1

ROA - ROTC

.038821

.089756

.009793

.019343

.058300

3.964

df
83

Sig. (2-tailed)
.000

Pair 2

ROTC - ROE

.020548

.116572

.012719

-.004750

.045845

1.615

83

.110

Pair 3

ROA – ROE

.059369

.156251

.017048

.025461

.093278

3.482

83

.001

Table 6.18 outlines the strength of determining significance to test explanatory power
of the three (3) different Non Institutional Materials dominated entities combinations
utilised. As noted the Paired Sampled Test have been ranked according to levels of
significance below .05, with clearly by a substantial margin ranking both significance
and t – score that the superior combination is ROA – ROTC and ROA – ROE.

156

Table 6.19: Paired Samples Statistics for Institutional Miscellaneous Dominated
Entities
Paired Samples Statistics

Mean
Pair 1
Pair 2

Std. Deviation

Std. Error
Mean

ROA

.04228

57

.148984

.019733

ROTC

.02879

57

.146361

.019386

ROTC

.02879

57

.146361

.019386

ROE
Pair 3

N

.10368

57

.210704

.027908

ROA

.04228

57

.148984

.019733

ROE

.10368

57

.210704

.027908

Table 6.19 Paired Samples Statistics outlines descriptive data on the three (3)
Institutional Miscellaneous dominated entities combinations of variables used and
where they lay in comparison with each other, showing smaller standard deviations for
the recorded means.
Table 6.20: Paired Samples Correlations for Institutional Miscellaneous
Dominated Entities
Paired Samples Correlations

Pair 1

ROA & ROTC

Pair 2

ROTC & ROE

Pair 3

ROA & ROE

N
57

Correlation
.976

Sig.
.000

57

.843

.000

57

.858

.000

Table 6.20 Paired Samples Correlations outlines Correlation data on the three (3)
Institutional Miscellaneous dominated entities combinations of variables used and
where they lay in comparison with each other, showing substantially high correlations
between the three (3) selected combinations being examined.

157

Table 6.21: Paired Samples Test for Institutional Miscellaneous Dominated
Entities
Paired Samples Test

Paired Differences

Mean

Std. Deviation

Pair 1

ROA - ROTC

.013491

.032755

Pair 2

ROTC - ROE

Pair 3

ROA – ROE

-.074895

.117512

-.061404

.112910

Std. Error
Mean

95% Confidence Interval
of the Difference
Upper
.022182

T

.004338

Lower
.004800

df

Sig. (2-tailed)

3.110

56

.003

.015565

-.106075

-.043715

-4.812

56

.000

.014955

-.091363

-.031444

-4.106

56

.000

Table 6.21 outlines the strength of determining significance to test explanatory power
of the three (3) different Institutional Miscellaneous dominated entities combinations
utilised. As noted the Paired Sampled Test have been ranked according to levels of
significance below .05, with clearly by a substantial margin ranking both significance
and t – score that the superior combination is ROTC – ROE and ROA – ROE

.

Table 6.22: Paired Samples Statistics for Non Institutional Miscellaneous
Dominated Entities
Paired Samples Statistics

Pair 1
Pair 2
Pair 3

ROA

Mean
-.05843

28

Std. Deviation
.381227

Std. Error
Mean
.072045

N

ROTC

-.03207

28

.492641

.093100

ROTC

-.03207

28

.492641

.093100

ROE

-.13368

28

.378408

.071512

ROA

-.05843

28

.381227

.072045

-.13368

28

.378408

.071512

ROE

Table 6.22 Paired Samples Statistics outlines descriptive data on the three (3) Non
Institutional Miscellaneous dominated entities combinations of variables used and
where they lay in comparison with each other, showing somewhat larger standard
deviations for the recorded means.

158

Table 6.23: Paired Samples Correlations for Non Institutional Miscellaneous
Dominated Entities
Paired Samples Correlations

Pair 1

ROA & ROTC

Pair 2

ROTC & ROE

Pair 3

ROA & ROE

N
28

Correlation
.956

Sig.
.000

28

.312

.105

28

.524

.004

Table 6.23 Paired Samples Correlations outlines Correlation data on the three (3) Non
Institutional Miscellaneous dominated entities combinations of variables used and
where they lay in comparison with each other, showing substantially high correlations
between the three (3) selected combinations being examined.

Table 6.24: Paired Samples Test for Non Institutional Miscellaneous Dominated
Entities
Paired Samples Test
Paired Differences

Mean

Std. Deviation

Pair 1

ROA – ROTC

-.026357

.170260

Pair 2

ROTC – ROE

.101607

.519028

Pair 3

ROA – ROE

.075250

.370780

Std. Error
Mean

95% Confidence Interval
of the Difference
Upper
.039663

t

.032176

Lower
-.092377

df

Sig. (2-tailed)

-.819

27

.420

.098087

-.099651

.302865

1.036

27

.309

.070071

-.068523

.219023

1.074

27

.292

Table 6.24 outlines the strength of determining significance to test explanatory power
of the three (3) different Non Institutional Miscellaneous dominated entities
combinations utilised. As noted the Paired Sampled Test have been ranked according
to levels of significance below .05, with clearly by a substantial margin ranking both
significance and t – score that the superior combination is ROA – ROE which in this
case is not impressive.

159

Figure 6.6: Histogram for Institutional (ROA) Dominated Materials Entities
Return on Assets for Institutional Material Entities

10

Frequency

8

6

4

2

Mean =-0.0154
Std. Dev. =0.183479
N =45

0
-0.500

-0.250

0.000

0.250

ROA

Table 6.25: Descriptive Statistics (ROA) Institutional Materials Dominated
Entities
Descriptive Statistics

N
ROA
Valid N (listwise)

Mean

Statistic
45

Statistic
-.01540

Std.
Deviation
Statistic
.183479

Skewness
Statistic
-.968

Std. Error
.354

Kurtosis
Statistic
.944

Std. Error
.695

45

The Histogram figure 6.6 shows the frequencies and dispersion of Institutional
Dominated Material entities for Return on Assets. As is shown in the descriptive table
6.25 against a normal distribution, predominately fall under the distribution curve with
slight left hand skewness
(-.968) and generally a flat right hand kurtosis (.944).

160

Figure 6.7: Histogram for Institutional (ROE) Dominated Materials Entities
Return on Equity for Institutional Material Entities

10

Frequency

8

6

4

2

Mean =0.00971
Std. Dev. =0.253795
N =45

0
-0.750

-0.500

-0.250

0.000

0.250

0.500

ROE

Table 6.26: Descriptive Statistics (ROE) Institutional Materials Dominated
Entities
Descriptive Statistics
N
ROE
Valid N (listwise)

Mean

Statistic
45

Statistic
.00971

Std.
Deviation
Statistic
.253795

Skewness
Statistic
-.577

Std. Error
.354

Kurtosis
Statistic
.572

Std. Error
.695

45

The Histogram figure 6.7 shows the frequencies and dispersion of Institutional
Dominated Material entities for Return on Equity. As is shown in the descriptive table
6.25 against a normal distribution, predominately fall under the distribution curve with
slight left hand skewness (-.577) and generally a flat right hand kurtosis (.572).

161

Figure 6.8: Histogram for Institutional (ROTC) Dominated Materials Entities
Return on Total Capital for Institutional Material Entities

14

12

Frequency

10

8

6

4

2

Mean =-0.02971
Std. Dev. =0.189796
N =45

0
-0.750

-0.500

-0.250

0.000

0.250

ROTC

Table 6.27: Descriptive Statistics (ROTC) Institutional Materials Dominated
Entities
Descriptive Statistics
N
ROTC
Valid N (listwise)

Mean

Statistic
45

Statistic
-.02971

Std.
Deviation
Statistic
.189796

Skewness
Statistic
-1.101

Std. Error
.354

Kurtosis
Statistic
1.364

Std. Error
.695

45

The Histogram figure 6.8 shows the frequencies and dispersion of Institutional
Material entities for Return on Total Capital. As is shown in the descriptive table 6.25
against a normal distribution curve, generally fall under the distribution curve with
high left hand skewness
(-.1.011) and a moderately peaked right hand kurtosis (1.364).

162

Figure 6.9: Histogram for Non Institutional (ROA) Dominated Materials Entities
Return on Assets for Non Institutional Material Entities

30

25

Frequency

20

15

10

5

Mean =-0.19857
Std. Dev. =0.286888
N =84

0
-2.000

-1.500

-1.000

-0.500

0.000

0.500

ROA

Table 6.28: Descriptive Statistics (ROA) Non Institutional Materials Dominated
Entities
Descriptive Statistics
N
Statistic
ROA

84

Valid N (listwise)

84

Mean

Std.
Deviation

Statistic

Statistic

-.19857

.286888

Skewness
Statistic
-2.334

Kurtosis

Std. Error
.263

Statistic

Std. Error

7.858

The Histogram figure 6.9 shows the frequencies and dispersion of Non Institutional
Material entities for Return on Assets. As is shown in the descriptive table 6.26
against a normal distribution, predominately fall outside the distribution curve with
high left hand skewness
(-2.344) and generally a very high peaked right hand kurtosis (7.858).

.520

163

Figure 6.10: Histogram for Non Institutional (ROE) Dominated Materials
Entities
Return on Equity for Non Institutional Material Entities

30

25

Frequency

20

15

10

5

Mean =-0.25794
Std. Dev. =0.396336
N =84

0
-2.500

-2.000

-1.500

-1.000

-0.500

0.000

0.500

ROE

Table 6.29: Descriptive Statistics (ROE) Non Institutional Materials Dominated
Entities
Descriptive Statistics
N
ROE
Valid N (listwise)

Mean

Statistic
84

Statistic
-.25794

Std.
Deviation
Statistic
.396336

Skewness
Statistic
-2.253

Std. Error
.263

Kurtosis
Statistic
7.225

Std. Error
.520

84

The Histogram figure 6.10 shows the frequencies and dispersion of Non Institutional
Material entities for Return on Equity. As is shown in the descriptive table 6.27
against a normal distribution curve, predominately outside the distribution curve with
high left hand skewness
(-2.344) and generally a very high peaked right hand kurtosis (7.225).

164

Figure 6.11: Histogram for Non Institutional (ROTC) Dominated Materials
Entities
Return on Total Capital for Non Institutional Material Entities

30

25

Frequency

20

15

10

5

Mean =-0.23739
Std. Dev. =0.36253
N =84

0
-2.500

-2.000

-1.500

-1.000

-0.500

0.000

0.500

ROTC

Table 6.30: Descriptive Statistics (ROTC) Non Institutional Materials Dominated
Entities
Descriptive Statistics
N
ROTC
Valid N (listwise)

Minimum

Statistic
84

Statistic
-2.113

Maximum
Statistic
.293

Mean
Statistic
-.23739

Std.
Deviation
Statistic
.362530

Skewness
Statistic
-2.944

Std. Error
.263

Kurtosis
Statistic
11.459

84

The Histogram figure 6.11 shows the frequencies and dispersion of Non Institutional
Material entities for Return on Total Capital. As is shown in the descriptive table 6.28
against a normal distribution, predominately fall outside the distribution curve with
high left hand skewness
(-2.944) and generally a very high peaked right hand kurtosis (11.459).

Std. Error
.520

165

Figure 6.12: Histogram for Institutional (ROA) Dominated Miscellaneous
Entities
Return on Assets for Institutional Miscellaneous Entities

25

Frequency

20

15

10

5

Mean =0.04228
Std. Dev. =0.148984
N =57

0
-0.500

-0.250

0.000

0.250

ROA

Table 6.31: Descriptive Statistics (ROA) Institutional Miscellaneous Dominated
Entities
Descriptive Statistics
N
Statistic
ROA

57

Valid N (listwise)

57

Mean

Std.
Deviation

Statistic

Statistic

.04228

.148984

Skewness
Statistic
-2.166

Kurtosis

Std. Error
.316

Statistic

Std. Error

6.774

The Histogram figure 6.12 shows the frequencies and dispersion of Institutional
Miscellaneous entities for Return on Total Assets. As is shown in the descriptive table
6.29 against a normal distribution curve, predominately fall outside the distribution
curve with high left hand skewness (-2.166) and generally a high peaked right hand
kurtosis (6.774).

.623

166

Figure 6.13: Histogram for Institutional (ROE) Dominated Miscellaneous
Entities
Return on Equity for Institutional Miscellaneous Entities

40

Frequency

30

20

10

Mean =0.10368
Std. Dev. =0.210704
N =57

0
-0.900

-0.600

-0.300

0.000

0.300

0.600

0.900

ROE

Table 6.32: Descriptive Statistics (ROE) Institutional Miscellaneous Dominated
Entities
Descriptive Statistics
N
ROE
Valid N (listwise)

Mean

Statistic
57

Statistic
.10368

Std.
Deviation
Statistic
.210704

Skewness
Statistic
-.935

Std. Error
.316

Kurtosis
Statistic
5.236

Std. Error
.623

57

The Histogram figure 6.13 shows the frequencies and dispersion of Institutional
Miscellaneous entities for Return on Equity. As is shown in the descriptive table 6.30
against a normal distribution curve, predominately outside the distribution curve with
slight left hand skewness (-.935) and generally a high peaked right hand kurtosis
(5.236).

167

Figure 6.14: Histogram for Institutional (ROTC) Dominated Miscellaneous
Entities
Return on Total Capital for Institutional Miscellaneous Entities

40

Frequency

30

20

10

Mean =0.02879
Std. Dev. =0.146361
N =57

0
-0.800

-0.600

-0.400

-0.200

0.000

0.200

ROTC

Table 6.33: Descriptive Statistics (ROTC) for Institutional Miscellaneous
Dominated Entities
Descriptive Statistics

N
ROTC
Valid N (listwise)

Mean

Statistic
57

Statistic
.02879

Std.
Deviation
Statistic
.146361

Skewness
Statistic
-2.736

Std. Error
.316

Kurtosis
Statistic
9.654

Std. Error
.623

57

The Histogram figure 6.14 shows the frequencies and dispersion of Institutional
Miscellaneous entities for Return on Total Capital. As is shown in the descriptive table
6.31 against a normal distribution curve, predominately fall outside the distribution
curve with high left hand skewness (-2.736) and generally a very high peaked right
hand kurtosis (9.654).

168

Figure 6.15: Histogram for Non Institutional (ROA) Dominated Miscellaneous
Entities
Return on Assets for Non Institutional Miscellaneous Entities

12.5

Frequency

10.0

7.5

5.0

2.5

Mean =-0.05843
Std. Dev. =0.381227
N =28

0.0
-1.500

-1.000

-0.500

0.000

0.500

1.000

ROA

Table 6.34: Descriptive Statistics (ROA) for Non Institutional Miscellaneous
Dominated
Descriptive Statistics
N
ROA
Valid N (listwise)

Mean

Statistic
28

Statistic
-.05843

Std.
Deviation
Statistic
.381227

Skewness
Statistic
-.935

Std. Error
.441

Kurtosis
Statistic
2.234

Std. Error
.858

28

The Histogram figure 6.15 shows the frequencies and dispersion of Non Institutional
Miscellaneous entities for Return on Assets. As is shown in the descriptive table 6.32
against a normal distribution curve, generally fall under the distribution curve with
slight left hand skewness (-.935) and generally a moderately peaked right hand kurtosis
(2.234).

169

Figure 6.16: Histogram for Non Institutional (ROE) Dominated Miscellaneous
Entities
Return on Equity for Non Institutional Miscellaneous Entities

10

Frequency

8

6

4

2

Mean =-0.13368
Std. Dev. =0.378408
N =28

0
-1.000

-0.750

-0.500

-0.250

0.000

0.250

ROE

Table 6.35: Descriptive Statistics (ROE) for Non Institutional Miscellaneous
Dominated
Descriptive Statistics
N
ROE
Valid N (listwise)

Mean

Statistic
28

Statistic
-.13368

Std.
Deviation
Statistic
.378408

Skewness
Statistic
-.753

Std. Error
.441

Kurtosis
Statistic
-.920

Std. Error
.858

28

The Histogram figure 6.16 shows the frequencies and dispersion of Non Institutional
Miscellaneous entities for Return on Equity. As is shown in the descriptive table 6.33
against a normal distribution curve, predominately fall under the distribution curve
with slight left hand skewness (-.753) and generally a very flat left hand kurtosis (.920).

170

Figure 6.17: Histogram for Non Institutional (ROTC) Dominated Miscellaneous
Entities
Return on Total Capital for Non Institutional Miscellaneous Entities

12.5

Frequency

10.0

7.5

5.0

2.5

Mean =-0.03207
Std. Dev. =0.492641
N =28

0.0
-1.000

-0.500

0.000

0.500

1.000

1.500

ROTC

Table 6.36: Descriptive Statistics (ROTC) for Non Institutional Miscellaneous
Dominated
Descriptive Statistics
N
ROTC
Valid N (listwise)

Mean

Statistic
28

Statistic
-.03207

Std.
Deviation
Statistic
.492641

Skewness
Statistic
.536

Std. Error
.441

Kurtosis
Statistic
2.181

Std. Error
.858

28

The Histogram figure 6.17 shows the frequencies and dispersion of Non Institutional
Miscellaneous entities for Return on Total Capital. As is shown in the descriptive table
6.34 against a normal distribution, generally fall under the distribution curve with
slight right hand skewness (.536) and a moderately peaked right hand kurtosis (2.181).

171

Table 6.37: Summary of All Statistical Data Tables
Table Dominance
No:
6.2 Institutional
Institutional
Non
Institutional
Non
Institutional
6.3 Institutional
Non
Institutional
6.4 Institutional
& Non
Institutional
6.5 Institutional
Non
Institutional
6.6 Institutional
& Non
Institutional
6.7 Institutional
6.8 Institutional
6.9
Non
Institutional
6.10
Non
Institutional
6.11 Institutional
& Non
Institutional
6.12 Institutional
& Non
Institutional
6.13 Institutional

6.14

Institutional

Entity Type

Pairs

Mean

SD

Materials
Miscellaneous
Materials

88.03%
88.38%
71.02%

9.09%
7.50%
16.70%

Miscellaneous

77.63%

16.19%

Materials
Materials

.880367
.710200

.0993557
.1670072

TScore

Materials
Miscellaneous
Miscellaneous

.883800
.776333

Sig

Skewness Kurtosis Correlation

.000

.924

.000

.791

.0754094
.1619426

Miscellaneous
Materials
Miscellaneous
Materials

.880367
.883800
.710200

-1.377
-.773
-1.433

.950
.279
1.461

Miscellaneous

.776333

-.624

-.170

Materials

.1701667 .0843258 11.053 .000

Miscellaneous
Materials

Materials

.1074667 .1122644
ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE
ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE

-.01540
and
-.02971
-.02971
and
.00971
-.01540
and
.00971

.183479
and
.189796
.189796
and
.253795
.183479
and
.253795

5.243

.000

.000

.992

.000

.974

.000

.980

172

6.15

6.16

6.17

6.18

6.19

6.20

Institutional

Materials

ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Materials
ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Materials
ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Materials
ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Institutional Miscellaneous ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Institutional Miscellaneous ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE

.014311

.025027

3.836

.000

-.039422

.081191

-3.257

.002

-.025111

.082410

-2.044

.047

-.19857
and
-.23739
-.23739
and
-.25794
-.19857
and
-.25794

.286888
and
.362530
.362530
and
.396336
.286888
and
.396336

.000

.989

.000

.957

.000

.945

.038821

.089756

3.964

.000

.020548

.116572

1.615

.110

.059369

.156251

3.482

.001

.04228
and
.02879
.02879
and
.10368
.04228
and
.10368

.148984
and
.146361
.146361
and
.210704
.148984
and
.210704

.000

.976

.000

.843

.000

.858

173
6.21

6.22

6.23

6.24

6.25
6.26
6.27
6.28
6.29
6.30
6.31
6.32
6.33
6.34
6.35
6.36

Institutional Miscellaneous

ROA
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Miscellaneous ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Miscellaneous ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Non
Miscellaneous ROA
Institutional
and
ROTC
ROTC
and
ROE
ROA
and
ROE
Institutional
Materials
ROA
Institutional
Materials
ROE
Institutional
Materials
ROTC
Non
Materials
ROA
Institutional
Non
Materials
ROE
Institutional
Non
Materials
ROTC
Institutional
Institutional Miscellaneous ROA
Institutional Miscellaneous ROE
Institutional Miscellaneous ROTC
Non
Miscellaneous ROA
Institutional
Non
Miscellaneous ROE
Institutional
Non
Miscellaneous ROTC
Institutional

.013491

.032755

3.110

.003

-.074895

.117512

-4.812

.000

-.061404

.112910

-4.106

.000

-.05843
and
-.03207
-.03207
and
-.13368
-.05843
and
-.13368

.381227
and
.492641
.492641
and
.378408
.381227
and
.378408

.000

.956

.105

.312

.004

.524

-.026357
and
.170260
.101607
and
.519028
.075250
and
.370780
-.01540
.00971
-.02971
-.19857

-.819

.420

1.036

.309

1.074

.292

.183479
.253795
.189796
.286888

-.968
-.577
-1.101
-2.344

.944
.572
1.364
7.858

-.25794

.396336

-2.253

7.225

-.23739

.362530

-2.944

11.459

.04228
.10368
.02879
-.05843

.148984
.210704
.146361
.381227

-2.166
-.935
-2.736
-.935

6.774
5.236
9.654
2.234

-.13368

.378408

-.753

-.920

-.03207

.492641

.536

2.181

174

6.4 SUMMARY
In summary Chapter six outlined the various analysis tools used in this study at
Univariate/Descriptive, Multivariate Analysis and Multiple regression levels. The
chapter reiterated definitions outlined in Chapter five as to how the various tools
implemented are designed and implemented to secure information to form an educated
opinion as to whether to accept or reject stated hypothesis. The findings and results in
Chapter six are intended to provide the fullest explanation to the stated problem and
hypothesis, coinciding with the maximum amount of clarity possible in this study.
Generally the results of analysis carried support the hypothesis that has been
conjectured in Chapter four. As outlined by Alan Kohler on the ABC finance on
October 30, 2006, that over the quarter July – September 2006 prices of large public
entities in which research has shown is dominated by institutional shareholders rose by
1% in value compared to those smaller entities in which research has shown in
dominated by non – institutional shareholders rose by .03% in value. This evidence
along side evidence produced in this study gives increased weight the hypothesis posed
in this study. In conclusion after analysing all of the data which has been presented in
tables and graphical depictions support the acceptance of alternative hypothesis H1a
and H2a and reject the null hypothesis of H1o and H2o. The results that have been
obtained also correlate with the evidence that has been outlined in the literature review
that also supports the conclusions drawn in this dissertation. Generally it is observed
that Institutionally Controlled entities show very slight skewness and kurtosis under a
normal distribution curve as where Non – Institutionally Controlled entities show very
pronounced skewness and kurtosis under a normal distribution curve, adding further
weight to the alternative hypothesis and rejection of the null hypothesis. Further
support is also outlined in 6.4 which give even further weighting to the support of the
alternative and rejection of the null hypothesis.
The findings are gathered around four dependent variables, sixteen independent
variables and sectors of the ASX Stock Exchange. The variables being:
1. Levels of Shareholdings – both Institutional and Non Institutional controlled
share registers, limited to the top 20 shareholders of Public Listed Corporations

175

2. Levels of Disclosure – both Institutional and Non Institutional controlled
Public Listed Corporations
Sectors are divided into four main areas, being:
1. Institutional Controlled Materials Companies
2. Non - Institutional Controlled Materials Companies
3. Institutional Controlled Miscellaneous Companies, i.e. Comprising of a
selection of all other sectors
4. Non – Institutional Controlled Miscellaneous Companies, i.e. Comprising of a
selection of all other sectors
The relevant findings outlined in this study being:
1.

Generally, it was found that Institutionally controlled materials companies
were found to exhibit a lower level of overall ownership but a higher level of
Corporate Governance Disclosure Compliance.

2.

Institutionally controlled entities in the majority were found to produce higher
R2 and T - Score values than those of Non Institutionally controlled entities.

3.

Institutionally controlled entities in the majority were found to produce higher
mean scores and lower standard deviations in beneficial independent variable
ratios and lower mean scores and lower standard deviations in non beneficial
independent variable ratios.

4.

Institutionally controlled entities in the majority were found to produce lower
significance levels below .05 than Non Institutional controlled counterparts.

5.

Institutionally controlled materials entities in the majority were found to
produce better outcomes than that of Institutionally Controlled Miscellaneous
entities, followed by Non Institutionally controlled Materials entities and lastly
Non Institutionally controlled Miscellaneous Entities.

6.

When comparing actual results with stated hypothesis, it is apparent that H1o
and H2o can be rejected, H1a and H2a can be accepted.

176

7.

When purusing individual summaries of data and accompanying graph,
conclusions are not only confirm within a 95% confidence interval, but also
the variations of testing combinations are highlighted as to which are good and
not so good tests to carry when assessing an entity for performance level.

177

CHAPTER 7
CONCLUSIONS AND RECOMMENDATIONS FOR FURTHER RESEARCH

178

7.0 INTRODUCTION

Chapter seven intends to focus on the conclusions of the disseratation and
recommendations for further as a result of the research. During research there is
inedidably areas of interest touched on and uncovered, but outside the scope of the
current study. During this dissertation the focus of has been maintained around
corporate governance compliance disclosure and financial performance as regards to
those entities either institutionally or non institutionally controlled. There are always
of course better ways of approaching and assessing a task or outcome and one such
way is to experiment with new and different variables, this approach is an element of
such further research as well as exploring the before mentioned uncovered topics as
outlined.
7.1 THE RESEARCH PROBLEM AND SCOPE

The research problem that has been covered in this paper is one which is dynamic and
does not show any signs of slowing or becoming stationary any time soon. Generally
speaking there are aspects of Corporate Governance that I think it would be fair to
assume that have not been addressed at this point. Who would have thought, for
example, that Enron had a Corporate Governance Issue in play. Enron displayed at the
time all the attributes of a well run and well governed company, with record profits
and share prices exceeding all expectations and certainly outstripping the performance
of other comparative companies. The scope of this paper encompassed what was
happening in Australia in regards to Corporate Governance and Voluntary Disclosure
and how corporate practices in Australia compare globally. The question that requires
addressing in future papers is whether Australia lags, surpasses or is equal to Corporate
Governance practices in other countries and how corporate governance practices in
Australia compare to overseas.

179

RESEARCH VALIDITY
Research Validity as per Cavana et.al (2001 p.464) is defined as ‘evidence that the
evidence, instrument or process used to measure a concept does in fact measure the
intended concept’. The tools that have been constructed using Microsoft Access are
purposely designed to capture voluntary disclosure data, financial information to test
both independent and dependent variable correlation. The information from company
annual reports are directly keyed into to Access and manipulations performed. Other
software used to calculate statistical data is SPSS v.14 and Microsoft Excel to sort data
for further use in other relevant packages. The relevance of research validity to the
study is to ensure that the approach taken embodies and captures the definition and is
applied correctly to a normative paradigm research project.
RESEARCH RELIABILITY
Research reliability as per Cavana et.al (2001 p.461) is defined as ‘the internal
consistency over time of the measuring instrument’. It is felt that whether a
longitudinal study was carried out in the future on the same sample or on a new
sample, the applicability of the measurement would deliver consistent and credible
results.
RESEARCH GENERALISABILITY
Research generalisability as per Cavana et.al (2001 p.457) is defined as ‘the
applicability of research findings in one setting to others’. It is felt that given that the
research spans the ASX Public Listed Entity populations, comprising a representative
sample of Public listed companies in each of the sampled sectors of the ASX, that the
research is seen to be highly generalisable.
MEASUREMENT SENSITIVITY

As stated by Cooksey (2006) AFM 491 ‘Research and Methodology’ Topic notes,
measurement sensitivity is defined as the extent to which a measure can reflect
particular magnitudes of change or difference in a construct or characteristic, perhaps

180

resulting from an experimental manipulation or intervention. As further stated by
Cooksey, a measure can be reliable and valid for the property it is measuring but still
be relatively insensitive for detecting differences of a certain expected size. The
relevance of measurement sensitivity is reflected in whether apart from an entity being
either institutionally or non institutionally controlled, could the size of the firm, i.e.
market capitalisation, have a bearing as predicted on corporate governance disclosure
practice and financial performance.
7.2 VOLUNTARY DISCLOSURE (VD)

The level of voluntary disclosure compliance is a consequence of the board’s
willingness to either disclose or not disclose information to interested parties.
The level of voluntary disclosure for the various sectors analysed are:
Institutional Material Companies
Non – Institutional Material Companies
Institutional Miscellaneous Companies
Non – Institutional Miscellaneous Companies
The levels of voluntary disclosure compliance revealing that in the majority of cases,
that Institutionally controlled entities exhibited a higher level of voluntary disclosure
than that of their Non Institutionally controlled entity counterparts and outlined in
results contained in chapter six.
Generally it is proposed that the reason for higher levels of voluntary disclosure with
in institutional shareholder dominated companies as opposed to non – institutionally
shareholder dominated is that institutional shareholders that invest in companies are
usually nominee entities for a larger group of members or unit holders, that have
invested large amounts of funds, usually superanuation funds to be invested by the
nominee entities to achieve the highest possible returns.

181

7.3 CORPORATE GOVERNANCE CHARACTERISTICS

Corporate governance characteristics are influenced by the characteristics of the board
culture that dominates an individual corporation. Board culture is that whether a board
as a consequence of the culture intrinsically discloses or suppresses information to
interested parties.
Of the corporations that have been studied, the corporate governance characteristics
have been found to diminish from Institutionally controlled corporations, which exhibit
a high level of disclosure.
In comparison non – institutionally controlled corporations showed lower levels of
disclosure.
Larger institutionally controlled corporations tend to fully comply with a great
majority of all recommendations, with a lapse in a small percentage of corporations,
not complying with recommendation 4.3.
Medium sized institutionally controlled corporations show a tendency to comply to a
lesser extent than that of larger corporations. In these cases there is a perceived lapse in
compliance with recommendation 4.3 as well as perceived that this class of corporation
seems to either not form all or particular committees or follow a path of integrating the
functions of certain committees into board functions. In particular the nomination
committee, the committee which falls into this category.
Larger non – institutionally controlled corporations seem to exhibit Corporate
Governance characteristics that equate to that of a Medium sized institutionally
controlled corporations.
Medium and smaller size non – institutionally controlled corporations exhibit the
lowest of all corporations analysed. In this class of corporation a large proportion show
a tendency not to establish any committees at all citing company size as the prime
reason. All or many functions are carried out by the board as part of the board
function.

182

7.4 EXTENT OF VOLUNTARY DISCLOSURE

The extent of voluntary disclosure compliance shown in this study is reasonably high.
The reasons for voluntary disclosure compliance are wide and varied. These reasons
maybe signalling, which is the desire to transmit good news and suppress bad news.
As hypothesised voluntary disclosure compliance amongst institutionally controlled
entities is higher than that of non institutionally controlled entities.
7.5 SUGGESTIONS FOR FURTHER RESEARCH

Future research could possibly encompass such areas as:
1. Examining Corporate Governance regimes in other countries; In various
countries, corporate governance is carried out in different ways. It is to look at
these differences and make a comparison of voluntary disclosure and
performance.
2. Exploring some of the relationships in Figure 3.2 that have not been addressed
in this dissertation; analysing some of the relationships, there are areas which
have not been widely explored. When cross – linking is carried out comes to
light avenues for further analysis and research.
3. Analysing the differences in corporate governance practice and disclosure
between quasi government entities and public listed companies; to look at if
there are noticeable differences between the way quasi government entities and
public listed companies are governed.
4. Pursuing the data and information that has been generated in Chapter six as to
further relationships that have not been analysed in this study; to look at data
and other relationships outlined in Chapter six that have not been considered in
this study.
5. Examine impact on business’ that do not consider sustainability, TBL (Triple
Bottom Line Reporting), QBL (Quadruple Bottom Line Reporting: which

183

includes Corporate Governance) as part of the overall business planning
process.
7.6 SUMMARY

In summary it was found by this study that there is strong evidence that the stated
hypotheses as outlined in Chapter four are supported.
In analyzing all the data produced in this study, there was great care and accuracy
taken to collate, display and interpret this data to show a totally unbiased account of
how the data confirmed or rejected hypotheses. This particular study has been
structured to form a document that outlines procedures and stated hypotheses that can
essentially be used as a tool to test investment proposals by subsequent users, sector by
sector to hopefully assist in prudently evaluating an intended investment decision.
It is viewed with great importance that the rules and boundaries of a particular research
paradigm followed are strictly adhered to in respect to all practical and theoretical
expectations, i.e. with respect to the normative/positive paradigm followed in this
study, that the research is seen as valid, reliable, generalisable and sensitive.
It is also intended that the depth and detail undertaken not only in the body of the
dissertation but also in the appendices, will help to form a collection of valuable
research/resource materials for subsequent post graduate and under graduate students
attempting business related studies at UNE.
It has been for the writer a rewarding, demanding and worthwhile study undertaken
and once again would like to thank all parties involved and named in the
acknowledgements for their contribution, and for any contributor that may have
remained un named.

184

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193

APPENDICES
Appendix A
GLOBAL CORPORATE GOVERNANCE REPORTS, STUDIES AND
RESOURCES OF INFLUENCE
YEAR

AUSTRALIA

1991

Bosch Report

1992

UK

US

Cadbury Report

Committee on

INTERNATIONAL

Sponsoring
Organisations of the
Treadway
Commission
1993

Bosch Report
Hilmer Report

1994
1995

Rutteman Report
Bosch Report

Greenbury Report

International Corporate
Governance Network

1998

Hampel Report

Commonwealth
Association for Corporate
Governance (CACG)

1998
1999

Combined Code
CLERP

Turnbull Report

Treadway

The OECD

Commission (COSO
1992)
2000
2001

The World Bank
Ramsay Report

Myners Report

Beyond Compliance:
Building a Corporate
Governance Culture
(CICA)

2002

Higgs Report

Corporate
Governance (Business
Roundtable)

2002

Hermes Principles

The New York Stock
Exchange Report

2002

King Report

2002

Sarbanes – Oxley Act
Commission on
Public Trust and
Private Enterprise

2003

ASX Corporate

Smith Report

Governance Council

Tyson Report

(Principles of Good
Corporate Governance and
Best Practice
Recommendations
2003

Australian Standard: Good

Combined Code

194
Governance Principles AS
(8000)
2003

CPA Australia

2003

Uhrig Report

2004

CLERP 9

PAIB Report into

Global Corporate

Enterprise

Governance Forum

Governance
2005

Business Roundtable,
Principles of
Corporate
Governance

2005

Internal Control

The Corporate

Guidance For

Governance of Listed

Directors on

Companies: A

Combined Code

Manual for Investors
(CFA Institute)

2006

Parliamentary Joint
Committee on Corporations
and Financial Services:
Corporate Responsibility:
Managing Risk and
Creating Value

Websites

NYSE
Corporate
Governance Institute
Corporate

European Corporate

Governance

Institute

Resources
(NASDAQ)
Corporate

Institute of Chartered

Governance

Secretaries and

(Conference Board)

Administrators (ICSA)

195

Appendix B
ASX CORPORATE GOVERNANCE COUNCIL
PRINCIPLES OF GOOD GOVERNANCE AND BEST PRACTICE
RECOMMENDATIONS
Recommendation No:
1.1

Recommendation
Formalise the functions reserved to the board and those
delegated to management

2.1

A majority of the board should be independent

2.2

The chairperson should be an independent director

2.3

The roles of the chairperson and chief executive officer should
not be exercised by the same individual

2.4

The board should establish a nomination committee

2.5

Provide the information in Guide to reporting on Principle 2

3.1

Establish a code of conduct to guide the directors, the chief
executive officer (or equivalent), the chief financial officer or
equivalent and any other key executives as to: 3.1.1 and 3.1.2

3.1.1

The practices necessary to maintain confidence in the
company’s integrity

3.1.2

The responsibility and accountability of individuals for
reporting and investigating reports of unethical practice

3.2

Disclose the policy concerning trading in company securities
by directors, officers and employees

3.3

Provide the information indicated in Guide to reporting on
Principle 3

4.1

Require the chief executive (or equivalent) and the chief
financial officer (or equivalent) to state in writing to the board
that the company’s financial reports present a true and fair
view, in all material respects, of the company’s financial
condition and operational results are in accordance with
relevant accounting standards.

4.2

The board should establish an audit committee.

4.3

Structure the audit committee so that it consists of:


Only non executive directors



A majority of independent directors



An independent chairperson, who is not chairman of
the board



At least three members

4.4

The audit committee should have a formal charter.

4.5

Provide the information indicated in Guide to reporting on
Principle 4

5.1

Establish written policies and procedures designed to ensure
compliance with ASX Listing Rule disclosure requirements
and ensure accountability at a senior management level for that
compliance.

5.2

Provide the information indicated in Guide to reporting on
Principle 5

196
6.1

Design and disclose a communications strategy to promote
effective communication with shareholders and encourage
effective participation at general meetings.

6.2

Request the external auditor to attend the annual general
meeting and be available to answer shareholder questions about
the conduct of the audit and the preparation and content of the
auditors report.

7.1

The board or appropriate board committee should establish
policies on risk oversight and management

7.2

The chief executive officer (or equivalent) and the chief
financial officer (or equivalent) should state in writing that as
to 7.2.1 and 7.2.2

7.2.1

The statement given in accordance with best practice
recommendation 4.1 (the integrity of financial statements) is
founded on a sound system of risk management and internal
compliance and control which implements the policies adopted
by the board.

7.2.2

The company’s risk management and internal compliance and
control system is operating efficiently and effectively in all
material aspects.

7.3

Provide the information indicated in Guide to reporting on
Principle 7

8.1

Disclose the process for performance evaluation of the board,
its committees and individual directors and key executives

9.1

Provide disclosure in relation to the company’s remuneration
policies to enable investors to understand (1) the costs and
benefits of those policies and (2) the link between remuneration
paid to directors and key executives and corporate performance

9.2

The board should establish a remuneration committee

9.3

Clearly distinguish the structure of non-executive directors’
remuneration from that of executives.

9.4

Ensure that payment of equity based remuneration is made in
accordance with thresholds set in plans approved by
shareholders

9.5

Provide the information indicated in Guide to reporting on
Principle 9

10.1

Establish and disclose a code of conduct to guide compliance
with legal and other obligations to legitimate shareholders

Source: ASX Corporate Governance Council ‘Principles of Good Governance and Best Practice Recommendations’ March 2003

197

Appendix C
LIST OF ANNUAL REPORT HYPERLINK REFERENCES
Company Name
AGL Limited
ABB Grain Limited
AJ Lucas Group Limited
Australian Zircon Limited
Aurora Minerals Limited
Amcor Limited
Austal Limited
Australian Ethical
Investment Limited
Australian United
Investment Co. Ltd

Web Address
http://www.agl.com.au/
http://www.abb.com.au/
http://www.lucas.com.au/
http://www.auzircon.com.au/
http://www.auroraminerals.com/
http://www.amcor.com/
http://www.austal.com/
http://www.austethical.com.au/

Date Accessed
15/04/2006
14/04/2006
17/01/2006
10/04/2006
18/03/2006
15/04/2006
20/1/2006
18/03/2006

http://www.aui.com.au/

18/03/2006

AGD Mining Limited

http://www.agdmining.com.au/

18/03/2006

Aim Resources Limited

http://www.aimresources.com.au/

10/04/2006

Anvil Mining Limited

http://www.anvilmining.com/

10/04/2006

Anglo Australian
Resources Ltd

http://www.anglo.com.au/

18/03/2006

Australian Ethanol
Limited

http://www.australianethanol.com.au/

18/03/2006

Avatar Industries Limited

http://www.avatar-industries.com.au/

18/03/2006

Bentley International
Limited

http://www.bel.com.au/

16/04/2006

Bridgestone Australia
Limited

http://www.bridgestone.com.au/

19/03/2006

Beaconsfield Gold NL

http://www.beaconsfieldgold.com.au/

18/01/2006

Boulder Steel Limited

http://www.boulder.au.com/

19/03/2006

Bullion Minerals Limited

http://www.bullionminerals.com/

19/03/2006

BHP Billiton Limited

http://www.bhpbilliton.com/

17/04/2006

Boral Limited

http://www.boral.com.au/

17/04/2006

Brambles Industries
Limited

http://www.brambles.com/

17/04/06

Batavia Mining Limited

http://www.bataviamining.com.au/

19/03/2006

Blue scope Steel Limited

http://www.bluescopesteel.com/

19/03/2006

Bradford and Bingley

http://www.bbg.co.uk/

18/04/2006

Breakaway Resources
Limited

http://www.breakawayresources.com.au/

19/03/2006

BMA Gold Limited

http://www.bmagold.com.au/

19/03/2006

Bake house Quarter Fund

http://www.pelorus-pipes.com.au/

19/03/2006

Calliden Group Limited

http://www.calliden.com.au/

19/03/2006

Capral Aluminum Limited

http://www.capral.com.au/

20/03/2006

CBH Resources Limited

http://www.consbh.com.au/

20/03/2006

Campbell Brothers
Limited

http://www.campbell.com.au/

17/01/2006

198

Carnarvon Petroleum

http://www.carnarvonpetroleum.com/

18/01/2006

Charter Pacific

http://www.charpac.com.au/

10/04/2006

Coca - Cola Amatil

http://www.ccamatil.com/

11/04/2006

CitroFresh International
Limited

http://www.citrofresh.com/

11/04/2006

Coles Myer Limited

http://www.colesmyer.com/

21/04/2006

Colorado Group Limited

http://www.coloradogroup.com.au/

21/04/2006

Cochlear Limited

http://www.cochlear.com.au/

20/03/2006

CSR Limited

http://www.csr.com.au/

20/03/2006

CSL Limited

http://www.csl.com.au/

20/03/2006

Comet Resources Limited

http://www.cometres.com.au/

20/03/2006

Compass Resources NL

http://www.compassnl.com/

21/03/2006

Computershare Limited

http://www.computershare.com/

21/03/2006

Commonwealth Bank of
Australia

http://www.commbank.com.au/

21/03/2006

Deep Yellow Limited

http://www.deepyellow.com.au/

22/03/2006

Discovery Nickel Limited

http://www.discoverynickel.com.au/

22/03/2006

De Grey Mining Limited

http://www.degreymining.com.au/

11/04/2006

Dominion Mining Limited

http://www.dml.com.au/

22/03/2006

Downer EDI Limited

http://www.downeredi.com/

22/03/2006

Dragon Mining Limited

http://www.dragon-mining.com.au/

22/03/2006

Dwyka Diamonds Limited

http://www.dwykadiamonds.com/

23/03/2006

Eagle Bay Resources NL

http://www.eaglebayresources.com.au/

23/03/2006

ERG Group

http://www.erggroup.com/

14/04/2006

Essential Petroleum
Resources

http://www.essentialpetroleum.com.au/

20/01/2006

Eurogold Limited

http://www.eurogold.com.au/

23/03/2006

Elkedra Diamonds NL

http://www.elkedra.com.au/

24/03/2006

Emperor Mines Limited

http://www.emperor.com.au/

23/03/2006

Ellendale Resources
Limited

http://www.dioro.com.au/

24/03/2006

Energy Resources
Australia

http://www.energyres.com.au/

14/04/2006

Energy Developments
Limited

http://www.energydevelopments.com/

26/04/2006

Equity Trustees Limited

http://www.eqt.com.au/

24/03/2006

E - Servglobal Limited

http://www.eservglobal.com./

11/04/2006

Fosters Group Limited

http://www.fostersgroup.com/

24/04/2006

199
Forest Enterprises
Australia Limited

http://www.fealtd.com/

14/04/2006

Falcon Minerals Limited

http://www.falcon.indigo.net.au/

24/03/2006

Fortescue Metals Group
Limited

http://www.fmgl.com.au/

15/04/2006

Fisher & Paykel
Appliances Holdings Ltd

http://www.fisherpaykel.com/.

24/03/2006

Flight Centre Limited

http://www.flightcentre.com/

26/03/2006

Flinders Diamonds
Limited

http://www.flindersdiamonds.com/

26/03/2006

Focus Minerals Limited

http://www.austminex.com.au/

26/03/2006

Fox Resources Limited

http://www.foxresources.com.au/

26/03/2006

GEC Asian Value Fund

http://www.gecetf.com.au/

27/03/2006

GEC Australian
Healthcare Fund

http://www.gecetf.com.au/

27/03/2006

Grange Resources
Limited

http://www.grangeresources.com.au/

11/04/2006

Gippsland Limited

http://www.gippslandltd.com/

27/03/2006

Gryphon Minerals
Limited

http://www.gryphonminerals.com.au/

11/04/2006

Goldstream Mining NL

http://www.goldstreammining.com.au/

27/03/2006

Gindalbie Metals Limited

http://www.gindalbie.com.au/

19/01/2006

Golden Tiger Mining NL

http://www.goldentiger.com.au/

20/01/2006

Halcyon Securities
Limited

http://www.halcyongroup.com.au/

29/03/2006

Heron Resources Limited

http://www.heronresources.com.au/

14/04/2006

Hill End Gold Limited

http://www.hillendgold.com.au/

29/03/2006

Hills Industries Limited

http://www.hills.com.au/

29/03/2006

Havilah Resources NL

http://www.havilah-resources.com.au/

29/03/2006

Helix Resources Limited

http://www.helix.net.au/

29/03/2006

Hannans Reward Limited

http://www.hannansreward.com/

11/04/2006

Home Building society
Limited

http://www.homedirect.com.au/

11/04/2006

Hutchinson
Telecommunications
(Australia Limited)

http://www.hutchison.com.au/

25/04/2006

Hydro – Electric
Corporation

http://www.hydro.com.au/

29/03/2006

Hunter Hall Value
Growth Trust

http://www.hunterhall.com.au/

25/04/2006

Imdex Limited

http://www.imdex.com.au/

30/03/2006

Incitec Pivot Limited

http://www.incitecpivot.com.au/

30/03/2006

IMD Group Limited

http://www.imdgroup.com.au/

30/03/2006

IOOF Holdings Limited

http://www.ioof.com.au/

12/04/2006

200

Independence Group NL

http://www.igo.com.au/

30/03/2006

Integra Mining Limited

http://www.integramining.com.au/

30/03/2006

IMF (Australia Limited)

http://www.imf.com.au/

12/04/2006

Jabiru Metals Limited

http://www.jabirumetals.com.au/

30/04/2006

Jervois Mining Limited

http://www.jervoismining.com.au/

12/04/2006

Jaguar Minerals Limited

http://www.jaguarminerals.com.au/

12/04/2006

http://www.jupitermines.com/

30/04/2006

James Hardie Limited NV

http://www.ir.jameshardie.com.au/

26/04/2006

JF Meridian

http://www.mirvac.com.au/

12/04/2006

Kagara Zinc Limited

http://www.kagara.com.au/

14/04/2006

Kentor Gold Limited

http://www.kentorgold.com.au/

30/04/2006

Korab Resources Limited

http://www.korabresources.com.au/

30/04/2006

Kingsgate Consolidated
Limited

http://www.kingsgate.com.au/

Kimberly Diamond
Company NL

http://www.kimberleydiamondco.com.au/

30/04/2006

Korvest Limited

http://www.korvest.com.au/

30/04/2006

Liberty Gold NL

http://www.libertygold.com.au/

03/04/2006

Latrobe Magnesium
Limited

http://www.latrobemagnesium.com/

12/04/2006

Lion Selection Group
Limited

http://www.lionselection.com.au/

12/04/2006

Lynas Corporation
Limited

http://www.lynascorp.com/

12/04/2006

Lihir Gold Limited

http://www.lihir.com.pg/

12/04/2006

Leighton Holdings
Limited

http://www.leighton.com.au/

26/04/2006

Longreach Group Limited

http://www.longreach.com/

15/04/2006

Leyshon Resources
Limited

http://www.leyshonresources.com/

19/01/2006

Lindsay Australia Limited

http://www.lindsayaustralia.com.au/

17/01/2006

Macarthur Coal Limited

http://www.macarthurcoal.com.au/

03/04/2006

Macquarie Bank Limited

http://www.macquarie.com.au/

26/04/2006

Magnesium International
Limited

http://www.mgil.com.au/

14/04/2006

Macquarie Prologis
Income Trust

http://www.macquarie.com.au/mpr

03/04/2006

Mariner Credit
Corporation Ltd

http://www.marinerfunds.com.au/

26/04/2006

Matilda Minerals Limited

http://www.matildaminerals.com/

03/04/2006

Meditech Research
Limited

http://www.mrl.com.au/

03/04/2006

Jupiter Mines Limited

26/04/2006

201

Mincor Resources NL

http://www.mincor.com.au/

12/04/2006

Murchison Metals
Limited

http://www.mml.net.au/

03/04/2006

Mirvac Group

http://www.mirvac.com.au/

26/04/2006

Multiplex Group

http://www.multiplex.com.au/

15/01/2006

MXL Limited

http://www.mxl.com/

20/01/2006

MYOB Limited

http://www.myob.com.au/

05/04/2006

Namberry Limited

http://www.namberry.com.au/

05/04/2006

Nustar Mining
Corporation Limited

http://www.nustarmining.com.au/

13/04/2006

Nufarm Limited

http://www.nufarm.com/

15/04/2006

Nexus Bonds Limited

http://www.nexusbonds.com.au/

05/04/2006

Nickel Australia Limited

http://www.nickelaustralia.com.au/

05/04/2006

Niquest Limited

http://www.niquest.com.au/

11/04/2006

NGM Resources Limited

http://www.ngmresources.com.au/

05/04/2006

Newcrest Mining Limited

http://www.newcrest.com.au/

13/04/2006

Niagra Mining Limited

http://www.niagaramining.com.au/

13/04/2006

NorthernStar Resources

http://www.nsrltd.com/

14/04/2006

Norwest Energy NL

http://www.norwestenergy.com.au/

19/01/2006

Oxiana Limited

http://www.oxiana.com.au/

05/04/2006

Onesteel Limited

http://www.onesteel.com/

05/04/2006

Oropa Limited

http://www.oropa.com.au/

13/04/2006

Olympia Resources
Limited

http://www.olympiaresources.com/

05/04/2006

Orica Limited

http://www.orica.com/

26/04/2006

Ottoman Energy Limited

http://www.ottomanenergy.com/

20/01/2006

Paperlinx Limited

http://www.paperlinx.com.au/

05/04/2006

Peninsula Minerals
Limited

http://www.peninsulaminerals.com.au/

13/04/2006

Pan Australian Resources
Limited

http://www.panaustralian.com.au/

05/04/2006

Perilya Limited

http://www.perilya.com.au/

05/04/2006

Pacific Brands Limited

http://www.pacificbrands.com.au/

26/04/2006

Panbio Limited

http://www.panbio.com.au/

20/01/2006

Patrick Corporation
Limited

http://www.patrick.com.au/

18/01/2006

Peet & Company Limited

http://www.peet.com.au/

13/04/2006

Peptech Limited

http://www.peptech.com/

13/02/2006

Plaspak Group Limited

http://www.plaspak.com.au/

20/01/2006

202
Publishing and
Broadcasting Limited

http://www.pbl.com.au/

14/01/2006

Perpetual Limited

http://www.perpetual.com.au/

08/04/2006

Quantum Resources
Limited

http://www.qur.com.au/

08/04/2006

Quay Magnesium Limited

http://www.quaymagnesium.com/

08/04/2006

Red Metal Limited

http://www.redmetal.com.au/

14/04/2006

Ramelius Resources
Limited

http://www.rameliusresources.com.au/

14/04/2006

Reckon Limited

http://www.quicken.com.au/

08/04/2006

RCR Tomlinson

http://www.rcrtom.com.au/

14/04/2006

Rio Tinto Limited

http://www.riotinto.com/

08/04/2006

Rimfire Pacific Mining
NL

http://www.rimfire.com.au/

08/04/2006

Reefton Mining NL

http://www.reeftonmining.com.au/

14/04/2006

Rinker Group Limited

http://www.rinker.com.au/

15/02/2006

Sabina Corporation
Limited

http://www.sabina.com.au/

08/04/2006

Sonnet Corporation
Limited

http://www.sonnet.com.au/

14/04/2006

Schaffer Corporation
Limited

http://www.schaffer.com.au/

08/04/2006

Sedimentary Holdings
Limited

http://www.sedimentary.com.au/

15/04/2006

Silex Systems Limited

http://www.silex.com.au/

08/04/2006

Southern Gold Limited

http://www.southerngold.com.au/

08/04/2006

SMC Gold Limited

http://www.smcgold.com.au/

14/04/2006

South Boulder Mines
Limited

http://www.southbouldermines.com.au/

08/04/2006

Sundance Resources
Limited

http://www.sundanceresources.com.au/

08/04/2006

Senetas Corporation
Limited

http://www.senetas.com/

20/01/2006

Smorgon Steel Group

http://www.smorgonsteel.com.au/

16/01/2006

Stockland Corporation
Limited

http://www.stockland.com.au/

26/04/2006

Strike Oil Limited

http://www.strikeoil.com.au/

20/01/2006

Suncorp Metway Limited

http://www.suncorpmetway.com.au/

08/04/2006

Tabcorp Holdings Limited

http://www.tabcorp.com.au/

08/04/2006

Tanami Gold NL

http://www.tanami.com.au/

08/04/2006

Tethyan Copper Company
Limited

http://www.tethyan.com/

14/04/2006

Territory Iron Limited

http://www.territoryiron.com.au/

08/04/2006

203
TFS Corporation Limited

http://www.tfsltd.com.au/

08/04/2006

Troy Resources NL

http://www.try.com.au/

14/04/2006

Tasman Resources
Limited

http://www.tasmanresources.com.au/

20/01/2006

Transfield Services
Limited

http://www.transfieldservices.com.au/

26/04/2006

Taps Trust

http://www.hfm.com.au/

14/04/2006

Transpacific Industries
Group

http://www.transpacific.com.au/

26/04/2006

Tectonic Resources NL

http://www.tectonicres.com.au/

15/04/2006

Tower Limited

http://www.towerlimited.com/

08/04/2006

Union Resources Limited

http://www.unionresources.com.au/

08/04/2006

Universal Resources
Limited

http://www.universalresources.com.au/

08/04/2006

United Kimberly
Diamonds NL

http://www.ukd.com.au/

08/04/2006

Vulcan Resources Limited

http://www.vulcanresources.com.au/

08/04/2006

Victoria Petroleum
Limited

http://www.vicpet.com.au/

20/01/2006

Village Roadshow
Limited

http://www.villageroadshow.com.au/

14/02/2006

Vision Group Holdings

http://www.visiongroupaustralia.com/

26/04/2006

Wesfarmers Limited

http://www.wesfarmers.com.au/

08/04/2006

West Australian Metals
Limited

http://www.wametals.com.au/

08/04/2006

Westonia Mines Limited

http://www.westoniamines.com.au/

08/04/2006

Western Areas NL

http://www.westernareas.com.au/

14/04/2006

Willmott Forests Limited

http://www.willmottforests.com.au/

08/04/2006

Washington Resources
Limited

http://www.washingtonresources.com.au/

08/04/2006

Westmag Limited

http://www.westmag.com.au/

14/04/2006

Yilgarn Mining Limited

http://www.yilgarnmining.com.au/

08/04/2006

Zimplats Holding Limited

http://www.zimplats.com/

08/04/2006

204

Appendix D Multiple Regression Tables
SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: FAT (Fixed Asset Turnover) TAT (Total Asset Turnover) MARKET CAP (Market Capitalisation) EPS
(Earnings per Share)
PE (Price Earnings)
R1&R18
Dep Var:
Inpershare
Nipershare
Ind Var:
FAT
TAT
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
FAT
TAT
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.128

44
45

INST
MATERIALS
T - SCORE

14.067

INST
MISC
SECTORS
R2

.18

INST
MISC
SECTORS
T-SCORE

12.693

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.051

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.168

.773
-.872
1.595
-1.179
-.649

-1.294
.884
.050
-1.523
2.685

16.474
.817
.040
-1.414
1.011
.460

11.368
.067
-.747
.408
.869
-.152

.822

.234

.021

.002

.30>.05
44
45

56
57

.08>.05
56
57

83
84

.007<.05
83
84

27
28

.0007<.05
27
28

SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: Independent Variables: CR (Current Ratio) QR (Quick Ratio) CASHR (Cash Ratio) MARKET CAP
(Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)

R2&R19
Dep Var:
Inpershare
Nipershare
Ind Var:
CR
QR
CASHR
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
CR
QR
CASHR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION

INST
MATERIALS
R2

DF
N

44
45

.181

INST
MATERIALS
T-SCORE

11.465

INST
MISC
SECTORS
R2

.245

INST
MISC
SECTORS
T-SCORE

10.007

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.075

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SC0RE

.402

1.663
-.443
-.096
1.110
-.901
-1.362

-1.056
2.406
-2.166
-.228
-1.473
3.108

15.264
-1.439
.539
-.351
-1.711
1.204
.321

9.405
.775
-2.891
3.087
1.193
1.568
-.585

.096

5.744

.180

7.569

.035<.05

.001<.05

.065>.05

.01<.05

44
45

56
57

56
57

83
84

83
84

27
28

27
28

205

SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: WCT (Working Capital Turnover) DEBTCAPR (Debt / Capital Ratio) DEBTEQR (Debt / Equity Ratio)
MARKET CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R3&R20
Dep Var:
Inpershare
Nipershare
Ind Var:
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.148

44
45

INST
MATERIALS
T-SCORE

14.703

INST
MISC
SECTORS
R2

.247

INST
MISC
SECTORS
T-SCORE

12.972

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.083

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.153

-1.157
.248
-.026
1.119
-1.069
-.481

.232
-.528
1.787
-.773
-1.559
1.974

17.399
-.690
1.151
.281
-1.723
.777
.611

11.373
-1.008
.731
-.605
.132
1.147
-.372

.004

.520

.183

.025

.001<.05
44
45

56
57

.19>.05
56
57

83
84

.067>.05
83
84

27
28

.0009<.05
27
28

SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: DEBTCAPR (Debt / Capital Ratio) TIER (Times Interest Earned Ratio) MARKET CAP (Market
Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R4&R21
Dep Var:
Inpershare
Nipershare
Ind Var:
DEBTCAPR
TIER
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
DEBTCAPR
TIER
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.200

44
45

INST
MATERIALS
T-SCORE

17.079

INST
MISC
SECTORS
R2

.197

INST
MISC
SECTORS
T-SCORE

13.027

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.080

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.143

.147
2.025
.601
-.905
-1.560

1.676
-.056
-.506
-1.612
2.287

18.404
1.651
-.451
-1.758
.776
.508

11.325
.303
-.354
.344
1.073
-.230

.252

.175

.516

.009

.09>.05
44
45

56
57

.06>.05
56
57

83
84

.19>.05
83
84

27
28

.003<.05
27
28

206
SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: OPMARGR (Operating Margin Ratio) EBIT (Earnings before Interest & Tax) EBT (Earnings before Tax)
MARKET CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R5&R22
Dep Var:
Inpershare
Nipershare
Ind Var:
OPMARGR
EBIT
EBT
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
OPMARGR
EBIT
EBT
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.176

44
45

INST
MATERIALS
T-SCORE

14.128

INST
MISC
SECTORS
R2

.458

INST
MISC
SECTORS
T-SCORE

13.227

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.082

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.308

-1.164
1.644
-1.492
1.362
-1.363
-.941

.722
2.713
-4.636
-.426
-1.014
3.804

17.725
.334
-.354
.497
-1.682
.808
.380

13.662
-2.229
2.455
-.685
-.107
1.158
-.921

4.988

14.922

.030

.428

.009<.05
44
45

56
57

.027<.05
56
57

83
84

.01<.05
83
84

27
28

.156>.05
27
28

SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: ROA (Return on Assets) ROTC (Return on Total Capital) ROE (Return on Equity) MARKET CAP
(Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R6&R23
Dep Var:
Inpershare
Nipershare
Ind Var:
ROA
ROTC
ROE
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
ROA
ROTC
ROE
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.247

44
45

INST
MATERIALS
T-SCORE

17.123

INST
MISC
SECTORS
R2

.201

INST
MISC
SECTORS
T-SCORE

13.838

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.062

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.150

2.490
-1.651
-1.734
1.644
-1.205
-.988

-1.225
.641
1.527
-.118
-1.231
2.783

16.874
.973
-.486
-.640
-1.739
.991
.515

10.900
1.380
-1.359
-1.473
.081
1.048
.275

13.952

.485

.269

.064

.025<.05
44
45

56
57

.179>.05
56
57

83
84

.010>.05
83
84

27
28

.02<.05
27
28

207
SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: ROA (Return on Assets) FAT (Fixed Assets Turnover) TAT (Total Assets Turnover) MARKET CAP
(Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R7&R24
Dep Var:
Inpershare
Nipershare
Ind Var:
ROA
FAT
TAT
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
ROA
FAT
TAT
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.134

44
45

INST
MATERIALS
T-SCORE

12.101

INST
MISC
SECTORS
R2

.191

INST
MISC
SECTORS
T-SCORE

12.410

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.058

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.238

.485
.846
-.991
1602
-1.232
-.735

-.820
-1.472
1.080
.017
-1.280
2.778

13.511
.718
.823
-.185
-1.530
1.092
.532

9.562
1.396
.047
-1.116
.042
.693
-.258

.589

.078

.097

.0005

.216>.05
44
45

56
57

.028<.05
56
57

83
84

.035<.05
83
84

27
28

.000<.05
27
28

SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: ROTC (Return on Total Capital) WCT (Working Capital Turnover) DEBTCAPR (Debt / Capital Ratio)
DEBTEQR (Debt / Equity Ratio) MARKET CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R8&R25
Dep Var:
Inpershare
Nipershare
Ind Var:
ROTC
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
ROTC
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.148

44
45

INST
MATERIALS
T-SCORE

12.827

INST
MISC
SECTORS
R2

.247

INST
MISC
SECTORS
T-SCORE

12.809

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.087

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.153

.159
-1.127
.237
-.016
1.093
-1.066
-.497

-.049
.227
-.525
1.770
-.767
-1.476
1.908

14.816
.557
-.759
1.156
.260
-1.792
.829
.640

10.982
.065
-.980
.670
-.590
.094
1.105
-.366

.000

.022

.121

.000

.000<.05
44
45

56
57

.008<.05
56
57

83
84

.044<.05
83
84

27
28

.000<.05
27
28

208
SUMMARY
Dependent Variables: Inpershare (Institutional Percent Shareholding) Nipershare (Non Institutional Percent Shareholding)
Independent Variables: ROE (Return on Equity) DEBTEQR (Debt / Equity Ratio) MARKET CAP (Market Capitalisation) EPS
(Earnings per Share) PE (Price Earnings)
R9&R26
Dep Var:
Inpershare
Nipershare
Ind Var:
ROE
DEBTEQR
MARKETCAP
EPS
PE
Overall
Inpershare
Nipershare
ROE
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.121

44
45

INST
MATERIALS
T-SCORE

16.970

INST
MISC
SECTORS
R2

.242

INST
MISC
SECTORS
T-SCORE

14.437

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.067

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.094

-.430
.561
1.132
-1.134
-.666

-.070
2.393
-.791
-1.579
2.010

16.070
.358
1.402
-1.532
.773
.359

10.199
-.583
-.713
.176
1.236
-.405

.206

.421

.213

.036

.075>.05
44
45

56
57

.155>.05
56
57

83
84

.024<.05
83
84

27
28

.013<.05
27
28

SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: FAT (Fixed Asset Turnover) TAT (Total Asset Turnover) MARKET CAP (Market Capitalisation) EPS (Earnings per
Share) PE (Price Earnings)
R10&R27
Dep Var:
Indislev
Nidislev
Ind Var:
FAT
TAT
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
FAT
TAT
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.426

44
45

INST
MATERIALS
T-SCORE

24.274

INST
MISC
SECTORS
R2

.206

INST
MISC
SECTORS
T-SCORE

29.845

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.077

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.223

-3.139
2.352
1.359
-.272
1.608

-1.310
1.276
1.568
1.046
.983

18.783
-.893
1.183
-1.734
-1.660
-.221

12.265
.273
.705
-.408
-.362
-.106

4.388

2.695

.672

.003

.008<.05
44
45

56
57

.005<.05
56
57

83
84

.248>.05
83
84

27
28

.001<.05
27
28

209
SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: CR (Current Ratio) QR (Quick Ratio) CASHR (Cash Ratio) MARKET CAP (Market Capitalisation) EPS (Earnings per
Share) PE (Price Earnings)
R11&R28
Dep Var:
Indislev
Nidislev
Ind Var:
CR
QR
CASHR
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
CR
QR
CASHR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.428

44
45

INST
MATERIALS
T-SCORE

22.402

INST
MISC
SECTORS
R2

.300

INST
MISC
SECTORS
T-SCORE

25.505

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.143

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.214

-.122
.111
-.661
1.425
-.258
.814

2.139
.081
-1.595
1.274
1.536
1.237

18.658
-.780
-1.383
1.345
2.184
-.669
-.030

9.727
-.495
1.900
-1.965
-.607
-.680
-.041

0.002

.669

.063

.031

.000<.05
44
45

56
57

.245>.05
56
57

83
84

.023<.05
83
84

27
28

.011<.05
27
28

SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: WCT (Working Capital Turnover) DEBTCAPR (Debt / Capital Ratio) DEBTEQR (Debt / Equity Ratio) MARKET
CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R12&R29
Dep Var:
Indislev
Nidislev
Ind Var:
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.286

44
45

INST
MATERIALS
T-SCORE

21.560

INST
MISC
SECTORS
R2

.216

INST
MISC
SECTORS
T-SCORE

31.107

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.106

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.288

.521
.038
.004
1.573
-.204
1.166

-.695
1.099
-.292
1.023
1.056
.909

19.580
-.259
1.177
.138
-1.966
-1.564
-.087

14.803
2.073
-1.483
.610
-.099
-.431
-.191

0.000

.219

.011

.015

.000<.05
44
45

56
57

.08>.05
56
57

83
84

.004<.05
83
84

27
28

.005<.05
27
28

210
SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: DEBTCAPR (Debt / Equity Ratio) TIER (Times Interest Earned Ratio) MARKET CAP (Market Capitalisation) EPS
(Earnings per Share) PE (Price Earnings)
R13&R30
Dep Var:
Indislev
Nidislev
Ind Var:
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
DEBTCAPR
TIER
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.283

44
45

INST
MATERIALS
T-SCORE

25.701

INST
MISC
SECTORS
R2

.263

INST
MISC
SECTORS
T-SCORE

32.467

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.120

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.378

.313
.358
1.436
-.060
1.246

1.675
1.982
.463
1.091
.344

20.994
2.204
1.138
-1.948
-1.780
-.423

16.259
-.637
3.170
-.427
-.450
-.178

0.012

.577

3.679

.108

.006<.05
44
45

56
57

.03>.05
56
57

83
84

.184>.05
83
84

27
28

.005<.05
27
28

SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: OPMARGR (Operating Margin Ratio) EBIT (Earnings before Interest & Tax) EBT (Earnings before Tax) MARKET
CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R14&R31
Dep Var:
Indislev
Nidislev
Ind Var:
OPMARGR
EBIT
EBT
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
OPMARGR
EBIT
EBT
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.319

44
45

INST
MATERIALS
T-SCORE

21.043

INST
MISC
SECTORS
R2

.258

INST
MISC
SECTORS
T-SCORE

30.521

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.099

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.209

1.430
-.178
-.125
1.902
.104
1.335

-.901
2.113
-2.361
1.045
1.358
1.560

18.986
1.589
-1.753
1.037
-1.965
-1.369
.233

14.623
.862
-1.155
1.642
.609
-.401
-.424

0.008

9.950

1.811

.169

.003<.05
44
45

56
57

.001<.05
56
57

83
84

.023<.05
83
84

27
28

.06>.05
27
28

211
SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: ROA (Return on Assets) ROE (Return on Equity) ROTC (Return on Total Capital) MARKET CAP (Market
Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R15&R32
Dep Var:
Indislev
Nidislev
Ind Var:
ROA
ROTC
ROE
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
ROA
ROTC
ROE
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.485

44
45

INST
MATERIALS
T-SCORE

30.742

INST
MISC
SECTORS
R2

.290

INST
MISC
SECTORS
T-SCORE

34.534

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.091

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.290

-.2760
3.514
-.452
1.790
.085
1.709

1.621
-1.849
1.411
1.513
1.005
.834

18.279
1.564
-1.213
-.485
-1.803
-1.382
-.114

16.904
-.382
.623
1.618
-.804
-.565
-.697

1.140

5.363

.2614

.122

.034<.05
44
45

56
57

.002<.05
56
57

83
84

.096>.05
83
84

27
28

.045<.05
27
28

SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: ROTC (Return on Total Capital) WCT (Working Capital Turnover) DEBTCAPR (Debt / Capital Ratio) DEBTEQR
(Debt / Equity Ratio) MARKET CAP (Market Capitalisation) EPS (Earnings per Share) PE (Price Earnings)
R16&R33
Dep Var:
Indislev
Nidislev
Ind Var:
ROTC
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
ROTC
WCT
DEBTCAPR
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.346

44
45

INST
MATERIALS
T-SCORE

20.413

INST
MISC
SECTORS
R2

.245

INST
MISC
SECTORS
T-SCORE

31.401

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.110

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORS
T-SCORE

.351

1.845
-.126
-.047
.122
1.512
-.404
.797

1.371
-.637
1.191
-.313
1.112
.668
.554

16.025
-.562
-.175
1.162
.158
-1.807
-1.608
-.119

15.165
1.391
2.180
-.752
.280
-.637
-.591
-.283

.000

.134

.006

.068

.000<.05
44
45

56
57

.049<.05
56
57

83
84

.002<.05
83
84

27
28

.025<.05
27
28

212
SUMMARY
Dependent Variables: Indislev (Institutional Disclosure Level) Nidislev (Non Institutional Disclosure Level) Independent
Variables: ROE (Return on Equity) DEBTEQR (Debt / Equity Ratio) MARKET CAP (Market Capitalisation) EPS (Earnings per
Share) PE (Price Earnings)
R17&R34
Dep Var:
Indislev
Nidislev
Ind Var:
ROE
DEBTEQR
MARKETCAP
EPS
PE
Overall
Indislev
Nidislev
ROE
DEBTEQR
MARKETCAP
EPS
PE
PRODUCT TSCORES (IV)
PCONVERSION
DF
N

INST
MATERIALS
R2

.319

44
45

INST
MATERIALS
T-SCORE

27.647

INST
MISC
SECTORS
R2

.245

INST
MISC
SECTORS
T-SCORE

35.554

NON INST
MATERIALS
R2

NON INST
MATERIALS
T-SCORE

.094

NON INST
MISC
SECTORS
R2

NON INST
MISC
SECTORSTSCORE

.259

1.498
.408
1.516
-.436
.841

1.946
.546
1.317
.853
.569

17.800
-.577
1.677
-1.641
-1.571
-.229

15.085
2.611
.410
-.549
-.595
-.318

.340

.679

.571

.111

.125>.05
44
45

56
57

.25>.05
56
57

83
84

.21>.05
83
84

27
28

.04<.05
27
28



---

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