ABSTRACT This study investigates the pay–performance relationship of Chief Investment Officers (CIOs) in Australian industry superannuation funds and the impact of governance practices on this relationship. The study finds that CIO pay is positively associated with fund performance and this relationship is stronger for large funds. Despite regulatory recommendations for enhanced governance practices, such as increased board independence and diversity, these practices do not significantly strengthen the pay‐performance link. The findings suggest that one‐size‐fits‐all governance reforms for different types of superannuation funds, may be ineffective, highlighting the need for tailored approaches to improve executive remuneration practices in superannuation funds.

Abstract We examine the role of CEO power in the appointment of accounting financial experts (AFEs) to firm audit committees. Our results show that firms with powerful CEOs have a lower likelihood of appointing AFEs to their audit committees. In addition, effective AFEs—those characterized by experience, high status, and social independence from the CEO—are less likely to be appointed in firms with powerful CEOs. In the presence of powerful CEOs, effective AFEs are also less likely to be designated audit committee chair. The absence of effective AFEs is associated with the use of accounting discretion by powerful CEOs to meet or just beat analyst earnings forecasts. We find no evidence that AFEs choose to avoid serving on the boards of firms with powerful CEOs. Our findings are consistent with powerful CEOs influencing board appointments post‐Sarbanes‐Oxley Act through informal channels, including through their social ties with nominating committees. Our results suggest that current regulations prohibiting CEO involvement in the director nomination process and specifying who qualifies as a financial expert may be insufficient to ensure audit committee effectiveness and financial reporting quality. Résumé Pouvoir des PDG et choix stratégique des experts financiers en comptabilité pour siéger aux comités d’audit Nous examinons le pouvoir des PDG en matière de nomination d’experts financiers en comptabilité (EFC) aux comités d’audit des entreprises. Nos résultats indiquent que les entreprises dont le PDG a beaucoup de pouvoir sont moins susceptibles de nommer des EFC à leurs comités d’audit. En outre, les EFC efficaces—qui se caractérisent par leur expérience, leur statut élevé et leur indépendance sociale face au PDG—sont moins susceptibles d’être nommés dans les entreprises où les PDG ont beaucoup de pouvoir, ou d’assurer la présidence de leur comité d’audit. L’absence d’EFC efficaces est associée avec le recours à la discrétion comptable par les PDG puissants pour atteindre ou dépasser les prévisions des analystes concernant les bénéfices. Nous n’avons mis au jour aucune donnée probante indiquant que les EFC choisissent d’éviter de siéger aux conseils d’administration des entreprises dont le PDG dispose de beaucoup de pouvoir. Nos observations sont cohérentes avec le fait que, depuis l’adoption de la Loi Sarbanes‐Oxley, les PDG puissants exercent une influence sur les nominations au conseil par des canaux informels, y compris leurs liens sociaux avec les membres du comité de candidature. Nos résultats portent à croire que les règlements actuels interdisant aux PDG de participer au processus de nomination des administrateurs et précisant qui peut être un expert financier ne suffisent peut‐être pas à garantir l’efficacité d’un comité d’audit et la qualité de l’information financière.

We examine whether CEO pay cut announcements during the COVID-19 pandemic are symbolic and made to appease various stakeholders. We find that firms announcing a CEO pay cut are more likely to announce news that has a negative impact on their stakeholders, suggesting that pay cut announcements were used to alleviate stakeholder pressure. We also document that the pay cut announcements are associated with lower CEO salary but not total pay. In fact, our results suggest that pay cut announcements were symbolic, whereby salary cuts were substituted with increases in cash bonuses. Furthermore, we find a lower rate of shareholder dissent votes if a firm announced a pay cut. However, this effect is reduced if the CEO received higher total pay. Finally, we document higher shareholder dissent votes if a firm received government subsidies and paid higher CEO compensation or increased dividends. This suggests that shareholders do not prioritise their immediate financial interests and hold managers accountable for actions perceived negatively by the public.

Recent research suggests that shared auditors impact firm outcomes by facilitating information flows across clients and increasing financial statement comparability. This study argues that since client specific knowledge resides with audit partners the effects of shared auditors on corporate outcomes is primarily driven by client engagements with shared audit partners. We test this argument using Australian merger and acquisitions, where there is a longstanding requirement for the disclosure of audit partner details. We find: (i) a positive association between shared audit partners and the likelihood of a friendly acquisition, (ii) a negative association between shared audit partners and takeover premiums, and (iii) a positive (negative) association between shared audit partners and acquirer (target) and total cumulative abnormal returns. We also document that the significant effect of shared auditors is restricted to takeovers with shared audit partners.

We examine whether CEO compensation increases in firms located near a terrorist attack. We first replicate and confirm the findings of Dai et al. (2020) in the US setting using the original sample and an extended sample. Consistent with Dai et al. (2020) we document a causal link between terrorist attack proximity and CEO compensation, suggesting that CEOs use their bargaining power to extract additional compensation after a deterioration in their external environment. When we extend this analysis to the Australian setting, we find a positive association between CEO compensation and terrorist attack proximity, only for CEOs with higher bargaining power. Specifically, we find that Australian CEOs negotiate higher compensation after a terrorist attack when (i) board monitoring is weak and consists of majority non-independent directors and (ii) the local executive labor market provides more employment opportunities to the CEO.

Abstract This study examines whether independent directors who possess financial expertise and are independent from the CEO (i.e., non‐co‐opted) are associated with improved outcomes for industry superannuation funds. Our results highlight that independence alone is insufficient to improve fund outcomes. Instead, we find that only non‐co‐opted independent directors benefit fund members in terms of higher performance and lower fees. Moreover, we find that independent directors' financial expertise is not associated with fund performance and fees. Our study has implications for regulators and superannuation funds who are currently debating the need for one‐third independent directors on the board of Australian superannuation funds.

The purpose of this paper is to describe the construction of the first Australian patent database for ASX-listed firms from 1990 to 2018 and provide a first look into their innovation activities. We explain the data sources, matching process, assumptions made and limitations of the database. We conduct validity tests on patent-based innovation proxies derived from the database to ascertain whether they capture innovation. We find a positive correlation between firms that have more patents, and investment in research and development, a known observable indicator of innovation. We also find that Australian firm performance has a positive elasticity to patents and that patent productivity is highest for poor-performing firms. The Australian institutional setting is unique compared to the U.S setting, which to date has dominated the innovation literature. By making the database publicly available, we enable more innovation research to enhance our understanding of what motivates corporate innovation and improves its efficiency under different institutional contexts.

Abstract This study examines the impact of IFRS 10 adoption on consolidated financial reports. Our evidence suggests that the new standard is associated with firms consolidating fewer subsidiaries and consolidating fewer subsidiaries with non‐majority ownership. The results also indicate that the effects of IFRS 10 adoption are associated with financial reporting incentives. Finally, our results suggest that post‐IFRS 10, the value relevance of equity increased and the value relevance of profit decreased for firms reporting fewer subsidiaries. The findings are of particular interest to accounting standard setters who are currently undertaking their post‐implementation review of the impact of IFRS 10 adoption.

Recent concern has been expressed regarding accounting firms reducing the quality of their assurance services (statutory audit and other assurance services) to gain cross‐selling opportunities. While prior studies have focused on the quality of statutory audits, our study examines the quality of other assurance services, in the form of independent expert opinions provided to target firms in Australian takeovers. Specifically, this setting allows us to observe any dissent or consensus in opinions between the accounting firms and their clients regarding the fairness of a takeover offer price, the quality of the independent expert report (valuation range), and fees charged for their services. Our results are inconsistent with accounting firms providing lower quality independent expert reports. However, non–Big 4 accounting firms charge lower fees for their independent expert reports compared to other providers, consistent with potential incentives to cross‐sell future services.

Purpose This research letter outlines the “AFAANZ shark pitch 2020” research journey and reflects on the application of the pitch template to the authors’ research topic on innovation, future profitability and stock returns. Design/methodology/approach This study begins by outlining how the research started, followed by the choice of authors’ replication study. This study then outlines the authors’ interactions with the corresponding author of the original study and the journal editor. The authors also detail their personal journey of using the pitch template. Findings The pitch template facilitated the identification of a replication study that has significant impact in informing Australian policy decisions. It allowed the authors to succinctly articulate and refine their research ideas. Originality/value This research letter highlights authors’ mistakes in using the pitch template and what they learned from interacting with the original authors and journal editor.

Abstract We examine whether the age of CEOs and independent directors impacts the likelihood of receiving a successful takeover offer. First, we replicate and confirm the results of Jenter and Lewellen and find that retirement age CEOs (age 64–66) are more likely to receive successful takeover offers. Second, we extend their study by investigating the retirement preferences of independent directors. We find that the likelihood of receiving a successful takeover offer increases when a higher proportion of independent directors are at retirement age. This finding suggests that independent directors have similar retirement preferences to CEOs.

This paper examines the impact of innovation on future profitability and stock returns. We first replicate and confirm the findings of Hirshleifer et al. (2018) in the U.S. setting. Consistent with Hirshleifer et al. (2018) we find that innovation is associated with: (1) higher and more persistent profitability suggesting that more innovative firms are able to maintain a competitive advantage and (2) positive future stock returns suggesting mispricing of innovation in current share prices. When we extend these analyses to the Australian setting we continue to find that innovative firms experienced sustained profitability but unlike Hirshleifer et al. (2018) we find no evidence of mispricing. We argue that the general paucity of innovation in Australia and the two-tier registration system which allows investors to differentiate between the quality of patents, enable Australian investors to better price innovation.

Abstract We re‐examine the cross‐sectional stock return predictability of innovative originality documented in the 2018 paper by Hirshleifer et al . and introduce two measures of patenting activity: patent existence and patent counts. As firms with zero patents have zero innovative originality, we conjecture and find a high correlation between patenting activity measures and innovative originality. The findings of Hirshleifer et al . do not hold when we control for patenting activity. Our results highlight that simple patenting activity measures capture a significant portion of innovative originality, and hence need to be adequately controlled for in future innovation studies.

Abstract This study investigates the choice to obtain both financial advisory services and independent expert opinions during takeovers in Australia where these services are provided by independent firms. We find the use of both services increases when the target firm is offered a lower initial premium. We also document that engaging both services benefits target firm shareholders through a higher probability of a price revision and a greater likelihood of deal success. The results are robust to controlling for selection bias and suggest the use of both independent experts and financial advisors only adds value when different firms provide these services.

Abstract We investigate whether powerful chief executive officers (CEOs) influence the conditions of their cash bonus contracts. Specifically, we examine (i) the association between CEO power and the proportion of ex‐ante cash bonus to base salary (bonus ratio), (ii) the association between CEO power and the relative use of non‐financial to financial performance targets in cash bonus contracts, and (iii) the performance consequences of incorporating non‐financial targets in cash bonus contracts. Results show that powerful CEOs are associated with greater ex‐ante bonus ratios and higher proportions of non‐financial performance targets compared to less powerful CEOs. Furthermore, the use of quantitative and corporate social responsibility (CSR)‐related non‐financial performance targets is positively associated with subsequent firm performance, and the use of undefined non‐financial performance targets is negatively associated with subsequent firm performance. These results are robust to alternative econometric specifications and variable definitions.

This study examines the choice of boutique financial advisors in mergers and acquisitions, and the consequences of this choice on deal outcomes and post-acquisition performance. Boutique advisors often specialize in a particular industry and focus exclusively on providing advice in mergers and acquisitions. The results suggest that boutique financial advisors are preferred when the deal is considered complex and when information asymmetry is high. The study finds that the benefits of hiring a boutique advisor flow to both the acquirers and the target firms. Acquiring firms benefit in terms of improved post-merger performance, while target firms benefit in terms of higher completion of value-enhancing deals and positive cumulative abnormal returns. Overall, these results provide support for the growing popularity of boutique financial advisors in the Australian market. JEL classification: G24, G34