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Article
Publication date: 19 July 2011

Malcolm Smith, Yinan Dong and Yun Ren

The purpose of this paper is to investigate the relationship between narrative disclosures and corporate performance based on Australian evidence. In particular it builds…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between narrative disclosures and corporate performance based on Australian evidence. In particular it builds a model which discriminates between good and poor performing companies based on their corporate narratives.

Design/methodology/approach

A sample of Australian manufacturing companies is classified into two groups based on earnings per share (EPS) movement between 2008 and 2009. A content analysis of their discretionary narrative disclosures is used to classify and predict group membership.

Findings

This study finds that the word‐based variables based on discretionary disclosures are significantly correlated with corporate performance. Word‐based variables can successfully classify companies between “good” performers and “poor” performers with an accuracy of 86 percent.

Research limitations/implications

The relatively small sample size, for Australian manufacturing companies, limits both the predictive ability of the model and its generalisability elsewhere.

Practical implications

The findings of the paper demonstrate that certain keywords, notably the use of “high/highest” and “dividends” are significantly and positively associated with superior performance.

Originality/value

The study builds a classification model for continuing Australian companies, whereas prior research focuses on UK and US companies and is based on a healthy/failed distinction.

Details

Asian Review of Accounting, vol. 19 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 19 July 2011

Malcolm Smith, Yun Ren and Yinan Dong

The purpose of this paper is to examine the extent to which “corporate governance” and “conservatism” variables can contribute to the predictive ability of corporate…

1363

Abstract

Purpose

The purpose of this paper is to examine the extent to which “corporate governance” and “conservatism” variables can contribute to the predictive ability of corporate financial disclosures.

Design/methodology/approach

Multiple discriminant analysis is used to differentiate between good and poor companies in Australian manufacturing industry on the basis of their 2009 performance. A classification model including size, governance and conservatism variables, together with financial ratio data is constructed based on 2008 data, and used to predict 2009 performance.

Findings

A model with conservatism, total debt/total assets, company size, and “percentage of shareholdings held by non‐executive directors” (representing corporate governance) as its independent variables, has a classification accuracy of 80.6 percent, and a predictive accuracy of 62.2 percent.

Research limitations/implications

The relatively small sample size, for Australian manufacturing companies, limits both the predictive ability of the model and its generalisability elsewhere.

Practical implications

The findings of the paper demonstrate the importance of both “conservatism” and “corporate governance” measures in determining corporate financial performance.

Originality/value

The paper uses familiar discriminant methods in an unfamiliar context – focusing on surviving companies exhibiting extremes of financial performance.

Details

Asian Review of Accounting, vol. 19 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 21 April 2020

Yanfei Sun and Yinan Ni

This paper aims to construct a measure of integration among global banks and examine its impact on bank insolvencies and bank crises.

Abstract

Purpose

This paper aims to construct a measure of integration among global banks and examine its impact on bank insolvencies and bank crises.

Design/methodology/approach

The authors apply principal component analysis to measure a bank’s degree of integration to the global banking market. Moreover, they test whether bank integration affects bank insolvency risk, in which they treat the equity of individual banks as a call option.

Findings

The authors find that the banking industry has become more globally integrated over the past two decades. At the individual bank level, results indicate that banks with higher integration levels have more assets, more nontraditional banking services and more interbank businesses. Overall, they find that a bank’s integration level is negatively associated with insolvency risk, which suggests that greater integration with global markets diversifies a bank’s risk. At the country level, banking systems with less integrated big banks, or more integrated smaller banks, are more stable and hence less likely to suffer a banking crisis.

Originality/value

The authors construct a novel measure of integration among global banks and examine its impact on bank insolvencies and bank crises.

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