Journal of Law and Financial Management - Volume 9 (1) June 2010

Editorial »

Identifying Hybrids in Australia: Comparing the TOFA Debt and Equity Rules and AASB 132 for a Definition of Shareholding

by Eva Huang

When corporations require financing, there are typically two methods - debt and equity. The return from debt financing is interest, which gives rise to a tax deductible expense for the company issuing the debt. Equity financing returns dividends, which are non-tax-deductible distributions of profit. Corporations may issue hybrid securities such as preference shares, convertible notes, profit sharing loans and perpetual loans for profit maximisation and tax minimisation. In turn, the holders of financial instruments may, for purposes such as tax planning, assign rights from an instrument, which may change the nature of the instrument and consequently, the relationship of the holder to the corporation. This paper is a comparative study of debt and equity rules in the Taxation of Financial Arrangements (TOFA) regime in Division 974 of the Income Tax Assessment Act 1997 (ITAA 1997) and the provisions in AASB 132. The focus of this study is to look at instruments that are either in form or in substance equity and their different treatments under accounting and tax rules in Australia, thereby identifying a more appropriate definition of shareholding for businesses to comply with in Australia.

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Assessing the Impact of Diversity, Corporate Governance and Management Demographics on Firm Performance

by Owen Hall

Assembling the right management team is a challenging and complex process in today's global economy. The recent worldwide financial meltdown has simply underscored the importance of a far-sighted and balanced management organisation. The characteristics and composition of the management team along with effective corporate governance policies can also play a role in addressing these challenges. The purpose of this paper is to illustrate how analytical modeling can be used in helping shape organisational teams. A panel data analysis of S&P 1500 firms for the period 2004 to 2007 was performed. The results from the analysis show that management team diversity and commitment to good corporate governance both have a positive impact on firm performance as measured by Tobin's Q.

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Downsizing, Truth-Telling and Mimicking Behaviour

by Brett King and Carolyn Carroll

This paper addresses an ethical question: when there is little to lose, do corporate managers misrepresent the facts? The situation that we examine where truth-telling has minimal consequences is a firm's reason for eliminating employees. The consequence for misrepresenting the true reason is damage to the firm's reputation, but this impairment may be inconsequential. In general, our evidence is consistent with many firms telling the truth. However, for some firms, we find that managers apparently tell the truth, but perhaps not the whole truth. And for other companies, the evidence suggests 'mimicking' behavior. Some firms may try to mimic other firms - the ones in better financial condition - by giving the same reason for downsizing. In this sense these firms may be misrepresenting the truth.

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