The UTS Centre will develop existing research interests into the following collaborative research themes. Research themes each will encourage several related research projects.
Financial policy and corporate governance are inexorably linked. The choice of how an organization is financed dictates much of what the governance mechanisms selected look like. Major financial events such as initial public offerings and takeovers are associated with debate about the effectiveness of various governance mechanisms. For example high profile cases of financial distress, such as Ansett, HIH Insurance and One-Tel give rise to concerns about the effectiveness of outside directors, the link between governance and executive compensation, and the extent to which compensation reflects performance. Teams led by senior researchers in the Schools of Accounting and Economics and Finance are currently examining these issues, and this research will form an important part of the overall program. This represents the application of financial economics to these issues, and is consistent with the thrust of leading finance and accounting scholars worldwide. Research of this type can also inform debate about appropriate regulatory structures, as well as provide the basis for international corporate governance.
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The proposed UTS Centre will have as one of its key programs the examination of how international corporate governance systems are being transformed in response to the internationalisation of financial markets. Different regional and cultural systems of governance will be explored including the Anglo-Saxon "shareholder value" based approach, the European "stakeholder" approach, and Asian forms of collective capitalism. Reforms initiated in Asian and Eastern European countries by the World Bank, OECD and Asian Development Bank will be monitored, together with the increasing pressures from shareholder groups in different countries. This research can help establish what regulatory processes assist in creating effective governance, and also further our understanding of the link between financial institutions, markets and governance. For example, banks, securities markets and institutional investors create different types of demand for governance within firms. International comparisons provide the most powerful way of establishing the role of various institutional features in influencing governance, as well as assisting to identify the extent to which governance mechanisms are converging.
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Corporate governance is not just about the process by which elected representatives as directors make decisions. It is also about the way organizations are held accountable. The most obvious way is via financial reporting. The role of financial reporting in monitoring managerial and director performance, as well as possible deficiencies in the financial reporting and auditing process will be a major focus of the UTS Centre. This research will be directed to measuring the quality of financial reporting, and the extent to which stocks are efficiently priced in Australian and other markets. This program will begin with an examination of the incentives, which underlie the flow of information, including the reasons for the voluntary disclosure of information and the effect on firms' cost of capital. Subsequent studies will examine the influence of regulatory and governance environments on both the extent of voluntary disclosure, as well as the helpfulness of such disclosures.
Another research interest will examine the role of auditors in the information process. This includes an understanding of the economic demand for assurance and other services (including possible substitution effects with other forms of governance), as well as the effect of auditor assurance on the properties of earnings and other financial data.
A further project will focus on the role of information intermediaries, such as security analysts. Does the market pay attention to analysts' recommendations? What are the properties of analysts' earnings forecasts? Are such forecasts relevant in identifying the firms' value?
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Strong financial institutions are a cornerstone of successful capital markets, and ultimately the creation of wealth and economic well being. The failure of such institutions (e.g., HIH Insurance) can have a catastrophic financial effect, as well as considerable social cost. The focus of this research program is the development, testing, and implementation of risk management procedures, of which the most important are likely credit risk, market risk (e.g. interest rate risk, foreign exchange risk) and operational risk. Such issues take on greater importance given the expansion of capital adequacy proposals from the Bank for International Settlements, as well as debate about what constitutes effective prudential regulation in the financial sector (i.e. "market governance"). This research can have an important impact on determining the most effective means for assessing the efficiency of financial market regulation.
Related research will identify appropriate performance methods for measuring compliance performance in the financial services sector. A sustained, effective corporate compliance program is pivotal to the ongoing success of corporate governance in the financial services sector. This research will help establish appropriate risk management standards for financial firms (e.g., general insurance), identify the effect of regulatory reforms (such as the recent Financial Services Reform legislation) and also aid in establishing an analytical framework within which to identify non-criminal breaches of corporate and technical compliance.
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The company board of directors is charged with the responsibility of maintaining good corporate governance. There are important policy and performance elements to these responsibilities. The board of directors is the guardian of fairness, transparency and accountability in all of the major financial and business dealings of the company, defending the interests of investors and wider stakeholders. To fulfil this responsibility directorial boards are required to remain active, informed and competent in the supervision of the company. However company directors have more than simply a regulatory role - also they are ultimately responsible for the performance of the business, in agreeing the strategic direction of the company, appointing the chief executive, and monitoring the performance of the company. The legal, financial and institutional structures and relationships of corporate governance provide a framework within which company boards of directors operate in different countries, and board structure, representation and practices continue to vary due to cultural differences despite the adoption of international codes of practice. This research theme will examine the practical issues of company director selection and development, director duties and compensation, and the operation and assessment of boards in both their policy and performance roles and responsibilities. A major research project on The Changing Roles and Responsibilities of Company Boards and Directors, examining current corporate governance practices in large Australian corporations commenced early in 2003 in partnership with the leading Australian law firm Dibbs Abbott Stillman.
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In light of recent corporate collapses, constitutional conflict, and the push for national uniform regulation, the corporate governance regulatory regime is in a state of flux. This unstable legal environment underscores the need for research that can inform legal debate on these issues. Moreover, almost all of the research discussed above must recognize, either explicitly or implicitly, the role of regulatory frameworks. Hence, a legal perspective is a significant input into a program designed to identify the effects of corporate governance, as well as assessing alternative regulatory regimes. Potential issues include the impact of ethics on corporate governance, the role of governance in takeovers, the impact of the Financial Services Reform Act 2001 on governance in the finance sector, and the shift towards criminal sanctions for commercial misconduct. The future roles of ASIC, APRA and the Reserve Bank as regulators is also timely, as is an examination of the role of the company secretary (now often the corporate counsel) in corporate governance via the "conscience of the board" concept.
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The role of corporate governance in the matter of corporate social responsibility has been subject to recent debate, and demands on the corporate sector continue to grow. However, the implications of these developments have not been subject to rigorous analytical and empirical testing. While the concept of corporate social responsibility has its roots in the notion of stakeholder relations, the boundaries are not well established. As a result, there are unresolved political and social issues relating to the conduct of firms in certain sectors, such as financial services. There are also implications for the reporting of performance, with an increased focus on non-financial measures. How do such measures affect director and executive behaviour? Does the development of triple-bottom-line reporting address the social and environmental concerns created by the modern corporation? What is the significance of emerging concepts of corporate governance that embrace not only shareholders, but also employees, suppliers, distributors, and the wider community?
An additional concern is the role of non-profit organizations, which are often governed differently from corporations. What is the relationship between the non-profit focus and the democratic governance of such organizations? At a time when the simple shareholder model of corporate governance is being widely challenged, the inclusion in the research program of the not-for-profit sector provides an important benchmark for evaluating the success of corporate governance.
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