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Journal of Applied Research in Accounting and Finance

Vol 8 (2) December 2013


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Corporate Groups and the Duty of Directors to Act in Their Company's Best Interests By Barbara Mescher and Brett Bondfield

The nature of the group structure creates conflicts of interest for directors who have to reconcile both commercial and personal conflicts with this legal duty. This article examines the fiduciary duty of directors to act in the best interests of their company and highlights the complexities of this duty as it relates to corporate groups. The common law is ambiguous as demonstrated by English and Australian decisions, with cases offering different tests to determine the required standard. Landmark Australian litigation is analysed in this article: The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; and its appeal, Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASC 157, where the duty to act in the best interests of a company within a corporate group is a substantive issue. Law reform proposals are also examined, including CASAC's Corporate Groups Final Report 2000 that recommended a whole of enterprise approach be applied to the regulation of corporate groups and subsequent academic commentary. The consolidation regime that permits corporate groups to be considered as a single entity for the purposes of income taxation is also briefly considered as an example of the complexities of an enterprise approach being applied to the regulation of corporate groups.

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Quantifying Shareholder Losses from Continuous Disclosure Breaches: An Assessment of US Court Methods By Elvis Jarnecic and Daniel Maroney

In US securities fraud cases, the Market Model-based event study has been a required component of any calculation of damages. However, in Australia, there is no authority regarding the appropriate method for estimating damages for breaches of continuous disclosure provisions, a branch of securities fraud, by publicly-listed companies. This paper assesses four major methods for determining damages applied in US securities fraud matters to actual Australian breaches of continuous disclosure. Given the widespread acceptance and strength of the theoretical underpinnings of the Market Model, any divergence in damages estimation by the other methods supports the deference that should be shown to the Market Model in quantifying damages in securities fraud matters. The results highlight that the Market Model estimates loss differently from the other methods to a highly significant degree, thereby supporting the appropriateness of the Market Model in both US and Australian securities fraud matters.

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A Study of Analyst Forecast Reliability in Australia By Alina Maydybura, Dionigi Gerace and Brian Andrew

The purpose of this paper is to determine whether time weighted consensus estimates offer a more effective method for predicting company actual EPS figures than simple mean or median analysis. The study aims to construct a more comprehensive earnings forecast signal using analyst earnings forecasts that have been weighted based on the timeliness of updates. Aimed at extracting valuable information from timely analyst forecasts, the time weighted earnings signal (TWES) methodology allows extracting valuable information from analysts who possess some unique insights about the market and issue their updates more frequently. One would expect the time signal to reflect a more realistic representation of analyst estimate changes and thus be more effective in predicting the companies reported EPS than the mean and median.

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