The impact of mandatory governance changes on financial risk management

Hege, Ulrich, Hutson, Elaine and Laing, Elaine (2018) The impact of mandatory governance changes on financial risk management. TSE Working Paper, n. 18-889, Toulouse

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Official URL: http://tse-fr.eu/pub/32437

Abstract

This paper uses the staggered adoption of the Sarbanes-Oxley Act of 2002 for a difference-in-difference identification of the impact of corporate governance on hedging. In a large panel of listed US firms, we focus on two indexes of the legally required governance reforms, but also a wide index of governance quality. We find that the substantial improvements in governance standards robustly lead to less foreign exchange exposure and more foreign exchange derivatives hedging, and that the economic magnitude of the effect is large. Also, the adoption of mandatory governance measures is a stronger predictor of hedging than voluntary improvements. Dynamic panel GMM estimates confirm a significant positive relationship between governance quality and hedging.

Item Type: Monograph (Working Paper)
Language: English
Date: February 2018
Place of Publication: Toulouse
Uncontrolled Keywords: hedging, foreign exchange exposure, Sarbanes-Oxley Act, corporate governance, board monitoring, staggered introduction
JEL codes: F23 - Multinational Firms; International Business
F31 - Foreign Exchange
G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 Apr 2018 09:46
Last Modified: 15 Jul 2019 13:34
OAI ID: oai:tse-fr.eu:32437
URI: http://publications.ut-capitole.fr/id/eprint/25836

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