Monitoring Mechanisms, Managerial Incentives, Investment Distortion Costs, and Derivatives Usage

Abstract

We relate derivatives usage to the level of corporate governance/monitoring mechanisms, managerial incentives and investment decisions of UK firms. We find evidence to suggest that the monitoring environment, e.g., board size, influences the use of both currency and interest rate derivatives usage. Managerial compensation also influences derivatives usage. Investment decisions are affected by the governance and managerial compensation of firms, which in turn impact on derivatives usage. We find a strong tendency for UK firms to reduce derivatives usage in situations where derivatives usage should be increased. There is limited evidence that firms use hedging substitutes to avoid monitoring from external capital markets.

Publication DOI: https://doi.org/10.1016/j.bar.2017.11.004
Divisions: Aston Business School > Economics, Finance & Entrepreneurship
Aston Business School
Additional Information: © 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
Uncontrolled Keywords: Corporate hedging,corporate governance (CG), agency problem,under/overinvestment,logistic regression
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Related URLs: https://www.sci ... 0768?via%3Dihub (Publisher URL)
PURE Output Type: Article
Published Date: 2018-01-01
Published Online Date: 2017-12-24
Accepted Date: 2017-11-19
Authors: Huang, Jingjing
Su, Chen
Joseph, Nathan L ( 0000-0002-2182-0847)
Gilder, Dudley

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