Summer 2003





Corporate Governance: Some Key Challenges and Opportunities for Accounting Researchers
By Nava Subramaniam and Janek Ratnatunga


Impact of the Extent of Management Initiatives on Manufacturing Plant Profitability, An Exploratory Investigation

By Adam S. Maiga and Surendra P. Agrawal


This paper reports the results of an exploratory empirical investigation of the impact of the extent of implementation of five management initiatives on the profitability of manufacturing plants.  These initiatives are, (i) just in time systems, (ii) total quality control, (iii) use of the state-of-the-art technology, (iv) capacity utilization, and (v) developmental activities. We collected data through a mail questionnaire from manufacturing plant managers in several industries, and used a linear structural relations (LISREL) model to analyze the same.  The data included measures of several observable indicators reflecting the extent of the implementation of these initiatives.  The results show that these five factors explain almost half of the variability in the profits of the manufacturing plants.  Furthermore, each of these factors has a positive impact on the profitability, and except for capacity utilization, such impact is significant.


Profitability, Just-in-Time, Total Quality Control, Technology, Capacity Utilization, Developmental Activities, LISREL.

Setting Executive Directors’ Remuneration in Listed Companies

By Ruth Bender and Brenda Porter


Prior research into executive directors’ remuneration has focused on possible relationships between the remuneration paid to directors and variables such as company size and profitability, human capital and social comparison, and has theorised about the impact of different types of pay structure on directors’ performance.  Although this research has been useful in identifying factors that may influence directors’ pay and performance it has not addressed the issue of how remuneration committees determine the remuneration of their companies’ directors.

This paper seeks to rectify this limitation.  Firstly, it synthesises prior research and presents the findings in a manner that demonstrates how researchers have addressed the five key questions faced by remuneration committees.  Using this analysis, and drawing on discussions with key players in the remuneration-setting arena (such as members of remuneration committees and remuneration consultants), the paper then proposes a model to explain the process by which remuneration committees might determine their companies’ remuneration policy and the packages of individual directors.  The model comprises three elements – inputs, outputs and outcome.  The inputs are factors (such as company size and performance, attributes of individual directors, and remuneration paid in comparator firms) remuneration committees might consider when designing their companies’ remuneration policy and directors’ packages.

The outputs are (i) the company’s over-arching remuneration policy (the output of a first decision process) and (ii) the packages of individual directors, designed in accordance with the remuneration policy (the output of a second decision process).  The outcome is the quantum, structure and form of remuneration actually paid to individual directors.  If the company’s remuneration policy and packages have been designed unambiguously, the outcome flows automatically therefrom:  the remuneration committee is not involved in any additional decision process.

The proposed model provides insight into the process by which directors’ remuneration is determined and the factors that affect the process.  It is important for aiding the understanding of remuneration committees charged with setting their executive directors’ remuneration, and of regulatory bodies seeking to achieve greater restraint and transparency in respect of directors’ remuneration.  It is also of value to researchers interested in investigating the questions the model prompts.


Directors’ Remuneration, Executive Director, Pay Structures, Remuneration Committees, Compensation.

Interrelationship of Valuation and Portfolio Selection of Stocks

By Sardar M.N. Islam K.B. Oh


Valuation and portfolio choice of stocks are interrelated via optimal risk management.  Investors use valuation models in determining and evaluating stock values. Portfolio theory enables an optimal risk combination of the stock selected through valuation process. The portfolio optimisation problem is to determine what proportion of the portfolio should be allocated to each asset, given the investor’s objective on expected return by minimising the level of risk in the portfolio. The assumption in this analysis is that investors are risk averse.

This paper illustrates the process using Australian electronic commerce stocks and other assets to highlight their risk-return characteristics and to review the behaviour of e-commerce stocks in a portfolio context.

Appropriate conclusions are drawn. The results show that the Australian E-Commerce Multifactor Model (AEMM) tested is applicable.


Portfolio choice, Stock Valuation Models; e-Commerce; Financial Markets.

Impact of Participation in Budgeting and Information Asymmetry on Managerial Performance in the Macau Service Sector

By Desmond C.Y. Yuen and Keith C.C. Cheungi


Over several decades management accounting scholars have been studying the issue of how budgetary participation affects organisational behaviour such as managerial performance. However, the results of these studies have not always been consistent. It can be concluded that no simple relationship exists between budgetary participation and managerial performance. The current study reconciles the reasons for these inconsistencies and identifies a moderating factor that might affect the relationship between budgetary participation and managerial performance. By using the contingency approach, information asymmetry factor has been taken into consideration as a moderator that might affect the relationship. The results explain the relationship in terms of managers possessing more information and participating in the budgeting process were reported to be associated with improved performance. In contrast, participation by managers exhibiting less information flow was associated with diminished performance.


Budgetary Participation, Managerial Performance, Moderating Factors, Contingency Approach.

Book Reviews

Accounting: An Introduction, by Atrill, McLaney, Harvey, and Jenner

By Themin Suwardy

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