Corporate Governance Case Study

This thesis has examined the impact of corporate governance-related factors on stock returns. Corporate governance refers to the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflict of interests inherent in the corporate form. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how firm performance is optimised. There is no doubt that what ultimately matters for firms is whether corporate governance affects corporate performance. Specifically, this thesis contributed to the existing body of literature by providing an in-depth understanding of the effect of CEO incentive pay, discretionary accruals, and technical efficiency change on stock returns in Australia.

Among various governance mechanisms, compensation policy has been argued to be one of the most important factors in organisational success because it helps align interests of managers to those of shareholders. The notion is that effective compensation policies, particularly

On the other hand, if managers use their discretion over accruals opportunistically to manage earnings, discretionary accruals would distort the value relevance of reported earnings and become a less reliable and informative measure of firm performance than cash flows. Understanding the role of managerial discretion in an institutional environment where corporate governance is less regulated and choice of governance mechanisms is voluntary would be of interest to market participants and regulators. The second study therefore examined the relation between discretionary accruals and stock returns to see whether discretionary accruals represent signalling or opportunistic earnings management in