Journal of Law and Financial Management - Volume 6 (2) December 2007
The Decision to Enter Voluntary Administration: Timely Strategy or Last Resort?
By James Routledge, Bond University
One of the options available to directors of financially distressed companies is to place their company into voluntary administration (VA). The decision to enter VA should enhance corporate governance because it allows for informed decision-making about a company's future, and ensures that administration of a company's affairs proceeds in an orderly manner. Once in VA, a company has a short 'breathing space' during which it can develop a strategy to address its insolvency. The strategic options available will be significantly affected by past performance and current financial position. If the company's position has deteriorated significantly, the VA process will merely delay an inevitable liquidation. Therefore, a timely decision about entering VA is critical to the effectiveness of the procedure. This paper attempts to shed some light on the timeliness of the decision to enter VA. It presents an exploratory empirical examination of the change in financial characteristics for a sample of listed public companies over the critical time immediately prior to VA. The analysis focuses on how the changes that are observed affect prospects for reorganisation. The results suggest that the sample companies' prospects for reorganisation were significantly diminished in the time prior to VA, and that directors should have taken more timely action.
Organisations, Control Systems and Fraud
By Suresh Cuganesan and David Lacey, Macquarie Graduate School of Management
This paper examines how organisations are responding to the threat of identity fraud and the challenges that they face in doing so. Quantitative data were collected from 29 Australian organisations. The majority of organisations sampled emphasised the 'anticipation' of identity fraud and, in particular, activities performed in relation to prevention, deterrence and detection. Furthermore, organisations with more sophisticated preventative controls reported lower losses. Counter-intuitively on first glance, organisations with higher detection capabilities reported higher losses (other things being equal). The contributions of this paper are two-fold. Firstly, a framework is presented that both operationalises the identity fraud construct and facilitates the measurement and understanding of organisational responses in terms of a 'value-chain' of activities. Secondly, exploratory evidence is presented on how organisations are responding to identity fraud and the efficacy of these responses.
Taxation of Infrastructure
By Gordon Mackenzie, University of New South Wales
Infrastructure in Australia is under strain from two influences. First, the existing limited infrastructure is unable to keep pace with economic growth and, secondly, the demand for health and welfare infrastructure because of an ageing population.
There are no special rules for the taxation of infrastructure in Australian taxation law, except in very limited circumstances. The taxation of infrastructure assets is governed by the general taxation rules that apply to all other similar types of assets. However, what can be said about infrastructure taxation is the number of anti tax avoidance rules that it has attracted.
Does Competition Drive Credit Risk and Performance in Financial Services Lending? An Australian Investigation
By Josephine Diane Donato
Increased competition in the Australian lending market over recent years has forced authorised deposit-taking institutions (ADIs) to attract and retain customers by means of relaxing lending standards. As larger amounts are granted, it appears credit is more easily available to borrowers in comparison to the past. The industry has further experienced significant growth in non-conventional products, such as low-documentation loans, which are generally offered at rates close to the standard rate for traditional loans. While these changes may not create problems during times of strong economic conditions, they are likely to exacerbate loan losses if economic conditions deteriorate, as it seems as if ADIs have taken on more risk in order to stay competitive. The aim of this paper is to examine how lending market competition affects banking institutions' credit risk and performance within Australia. Thus, I hypothesise that increased competition leads to a rise in credit risk and that increased competition tends toward a reduction in performance. I test these hypotheses using linear regression.