Monitoring mechanisms, managerial incentives, investment distortion costs, and derivatives usage

Jingjing Huang, Chen Su, Nathan L. Joseph, Dudley Gilder

Research output: Contribution to journalArticle

2 Citations (Scopus)
5 Downloads (Pure)

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 both currency and interest rate derivatives usage. Managerial compensation plans also influence derivatives usage. Investment decisions are affected by the governance and managerial compensation plans 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.
Original languageEnglish
Pages (from-to)93-141
Number of pages49
JournalBritish Accounting Review
Volume50
Issue number1
Early online date24 Dec 2017
DOIs
Publication statusPublished - 1 Jan 2018
Externally publishedYes

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in British Accounting Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in British Accounting Review, 50:1 (2018) DOI: 10.1016/j.bar.2017.11.004

© 2018, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Agency problem
  • Corporate governance (CG)
  • Corporate hedging
  • Logistic regression
  • Under/overinvestment

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