Posts Tagged ‘corporate governance’

Risk Management: Flawed Fantasy Or Achievable Challenge?

Thursday, June 26th, 2014

By Brendan Hogan, a Masters of Applied Finance student

Lights are flashing. The screams of children are echoing off the walls. The cabin has become an ecosystem of fear and trepidation. There has been no word from the cockpit in over 20 minutes and the rattling of the Rolls-Royce engines mimic the velocity of an earthquake. A flight stewardess appears from the galley and assures the passengers everything is going to be alright. She asks everyone to put their life vests on as a precaution: “standard procedure,” she says. (more…)

One Job Too Many (?)

Tuesday, June 25th, 2013

by Jenna Moore, a current Bachelor of Business (Honours) student.

The recent and unexpected $6B trading loss sustained by JPMorgan Chase & Co fuelled the debate centered on CEO duality. CEO duality refers to the situation where the CEO also holds the position of the Chairman of the board. With increasing public awareness and academic interest in corporate strategic leadership, two key questions resound in both corporate finance research and social debate at large: Should the CEO and Chairman roles be separated? Should a separation be mandatory?

(more…)

When Ignorance is Not Bliss … Just Risky

Tuesday, June 11th, 2013

By Emily Tooker, Student of Master of Business (Applied Finance)

In the popular 1983 comedic film, Trading Places, commodities broker, Louis Winthorpe III, and rags-to-riches profiteer, Billy Ray Valentine, bet their life savings on the frozen orange juice market to accomplish a lucrative trade in a single master stroke.

At the end of the film, we are treated to Winthorpe and Valentine basking on a tropical island, and the token yacht decorating an expanse of blue ocean in the background.

Real or imagined accounts of overnight monetary success, such as that depicted in Trading Places, have given us the false impression that risk will give its due reward. Likewise, basic finance theory tells us that there is a risk-return trade off – to obtain a higher return, you must be willing to take on more risk – and this theory has driven a risk-seeking culture in finance.

(more…)

Thief, Liar, Cheater! Do bad guys really finish last?

Wednesday, May 15th, 2013

by Jenna Moore

In late 2012 Lance Armstrong ceased denying doping rumours. The seven-time Tour de France winner went from hero to zero faster than the news could be put to print around the world. Though some had always been dubious about his seemingly superhuman performance, there is no doubt Oprah’s extra long (and extra lucrative) expose would have left many die-hard Armstrong fans lost and troubled by the relentless and self-righteous deceit spanning more than a decade. Armstrong cemented himself as a cycling legend; a cancer survivor; a philanthropist, and he sure knew how to sell the sizzle without the steak. Lance Armstrong’s business was Lance Armstrong. His reputation was his capital and not only has he forfeit a large part of his future reputational nest-egg, he stands to be disrobed of the ‘unjust’ riches he was awarded by the US Federal Government through sponsorship deals amounting to US$40m. But even still, despite the seemingly rigorous international anti-doping measures in place, Armstrong proved the reward was worth the risk and is estimated to have accumulated a net worth of over $125m. Do bad guys really finish last?

(more…)

And you thought Frankenstein was scary: The rise of credit derivatives

Thursday, November 22nd, 2012

by Shane Murray
The monster Frankenstein was scary; there are no two ways about it. Regardless, the creature was created with all good intents, but confused and conflicted he desired nothing more than to see the life of his creator ended. Comparably, it seems credit derivatives are not too dissimilar. Created by the financial sector as a credit risk mitigant some 15 years ago, misunderstanding around their fair value coupled with their exponential growth has left the finance sector in a state of near ruin! Now you might ask, how did something as simple as a collection of swaps prompt the Global Financial Crisis (GFC)? Well it seems these humble swaps are more intricate than their name suggests. While the cash flows between counterparties can be assimilated to those of a tradition swap, the real payday comes after a credit event when the ‘swap’ more so resembles an insurance product. But don’t tell the regulator! In a market where the lenders are reaping the rewards of highly-leveraged seemingly de-risked positions, and the protection-sellers are happily watching the premiums accumulate, why concede to restrictive governance? Particularly, when considering the genius of the creator. But it seems the smarts are not all there, as the coming together of deficient credit modelling; moral hazards; and the unravelling of the sub-prime market, generated the very bolt of lightning needed to awaken the sleeping monster, which brought the thriving financial sector to its knees.

(more…)

Eyes wide shut: Are finance managers looking but don’t see?

Tuesday, October 9th, 2012

By Shane Murray

In the wake of poor returns or worse, substantial loss of wealth, Financial Managers wear the blame. Like a phoenix born from the ashes of ruin, the angry mob emerges and sprays charge at the financial sector, labelling their behaviour as reckless, their knowledge of financial markets absent and their understanding of risk as infantile. In my opinion this is a justified resolve as from inception, Financial Managers have been monitoring risk with their eyes wide shut. The inherent flaws of contemporary risk models used by Financial Institutions are well known, as too are the means of manipulating portfolios to accumulate risk not captured by their estimates. Such behaviour is reckless and wholly undermines why risk is quantified in the first place. But what choice do Traders have? Year after year shareholders demand bigger and better returns and Financial Managers find themselves in a precarious situation. Should they be reducing the exposures when the mutters of disaster begin to surface, or do they turn a blind eye and rely on their risk metrics as an appropriate scapegoat? After all, taking the safer approach, reducing risk and yielding a lesser return spell certain crucifixion at the hands of the same angry mob. So it seems the problem is twofold. Thankfully, with so much on the line, a collaborative approach to risk supervision is emerging through the Basel accords which aim to dispel such irresponsible behaviour. Unfortunately such endeavours are yet to curb the insatiable desires of the mob, which Financial Managers seem more than willing to oblige.

(more…)

Making Sense of Nonsense: Enhancing Corporate Governance Through Compliance

Friday, July 20th, 2012

by Peita Lin

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” — Adam Smith

While not the first to make such an assertion, much of modern capitalism works under the assumption that the inherent vices that drive human behaviour, namely self-interest and the inordinate accumulation of wealth are thought to be in aggregate beneficial for society. As a certain fictional investor once so eloquently remarked ‘greed, for a lack of better word, is good’.

We’re all utility maximisers and corporate executives, as the fittest specimens of this criterion, serve to remind the rest of us why we’re not making seven digit salaries. The greedy tendencies that drives and motivates their success are often at times to the detriment of others; and therein lies the fundamental problem underpinning much of corporate governance. We expect them, the executives and managers, to act ruthlessly in competition but fairly in the allocation of accrued benefits to us, the faceless shareholders. The technical term is ‘agency conflict’ and a great deal of time has been spent detailing and proposing solutions to this problem with varying degrees of success. A quick definition for the uninformed: the separation between ownership and control in an incorporated firm creates tensions between the interests of the principal and agent thereby creating a position of moral hazard.

(more…)

Finance and Politics: The Invisible Lending Hand

Wednesday, September 15th, 2010

by Janice How

Was the sacking of Prime Minister Kevin Rudd, a manifestation of the cosy relationship between government and the Australian financial sector? QUT’s Professor of Finance, Janice How, believes that relationships like this can only impede the development of financial systems.

(more…)


Privacy | Copyright matters | Accessibility
Contact us | Feedback | Disclaimer
Opinions expressed in this blog are those of the individual contributors only.
QUT Home | Blog Home