The Rise and Impact of Hybrid Securities in Australian Listed Corporations

MGSM Working Paper No. 2005-22

Posted: 31 Jul 2008

See all articles by Tyrone M. Carlin

Tyrone M. Carlin

Southern Cross University; The University of Sydney Business School

Nigel Finch

Saki Partners

Date Written: October 2005

Abstract

Since the turn of the new millennium, much attention has been focused on the pressing problem of improving corporate governance. A key element of this global trend has been an increased focus on transparency and quality in financial reporting. Yet at the same time as the spotlight has been shone brightly on the quality and transparency of financial reporting, the use of hybrid debt equity securities has undergone a renaissance in Australia. For issuers, these securities typically combine the dual attractions of high tax effectiveness and low cost of funds, while investors have exhibited strong demand for these securities because of the enhanced yields they typically offer in comparison to ordinary equity securities. From a financial reporting perspective however, these instruments can present a range of threats to transparency, consistency and comparability. This paper reports on a study of a sample of hybrid securities issued by large Australian listed corporations. The paper focuses on the key financial reporting impacts of this sample. From a balance sheet perspective these include the frequency with which the securities were classified as equity and the resulting impact on leverage ratios and other traditional risk measures. The impact of these securities on reported earnings and key financial performance metrics is also discussed. The paper concludes with recommendations for revisions in reporting practices which would systematically resolve a range of the reporting deficiencies identified in the data described and discussed therein.

Keywords: Hybrid Securities, Financial Reporting, Creative Accounting

JEL Classification: M41, M44, G32, H25

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel, The Rise and Impact of Hybrid Securities in Australian Listed Corporations (October 2005). MGSM Working Paper No. 2005-22. Available at SSRN: https://ssrn.com/abstract=841204 or http://dx.doi.org/10.2139/ssrn.841204

Tyrone M. Carlin

Southern Cross University ( email )

Lismore, New South Wales 2480
Australia

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/tyronec

Nigel Finch (Contact Author)

Saki Partners ( email )

Australia

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