Determinants of Financial Derivative Usage: Empirical Evidence from the Perspective of Governance Structure
Jeffrey(Jun) Chen () and
Yun(Yuang) Guan ()
Additional contact information
Jeffrey(Jun) Chen: College of Business, North Dakota State University, USA
Yun(Yuang) Guan: College of Business, Clemson University, USA
Review of Economics & Finance, 2018, vol. 13, 14-28
By examining the use of derivatives in a sample of US firms, this paper studies the relationship between the structure of corporate governance, including both bondholder rights and shareholder rights, and managerial hedging decision. We detect a significant association between the hedging decision and governance structure after controlling for well-documented rationales in the prior literature. As one of the first papers, we recognize the impact of bondholder rights on risk management. Our results document both strong bondholder rights and strong shareholder rights encourage hedging strategy, which supports our hypothesis that the main role of corporate hedging is to overcome inefficient markets and maximize firm value, and therefore strong bondholder (or shareholder) rights are positively related to the hedging policy. Our main results keep robust after adopting multiple alternative measures of bondholder rights and shareholder rights and using simultaneous equations model (SEM) to control for potential endogeneity. Moreover, we find weakly significant results echoing earnings management hypothesis but no evidence of risk-shifting hypothesis is observed.
Keywords: Corporate hedging; Governance; Bondholder rights; Stockholder rights (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bap:journl:180302
Ordering information: This journal article can be ordered from
17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada
Access Statistics for this article
Review of Economics & Finance is currently edited by H. Carlson
More articles in Review of Economics & Finance from Better Advances Press, Canada 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada.
Bibliographic data for series maintained by Carlson ().