Corporate risk management : determinants of hedging practice and the accounting disclosure decision

Mudge, Nicola S. (1992). Corporate risk management : determinants of hedging practice and the accounting disclosure decision Honours Thesis, School of Business, The University of Queensland.

       
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Author Mudge, Nicola S.
Thesis Title Corporate risk management : determinants of hedging practice and the accounting disclosure decision
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1992
Thesis type Honours Thesis
Total pages 103
Language eng
Subjects 14 Economics
Formatted abstract Theories advanced in the financial economics literature suggest that firms' hedging practices are motivated by incentives to reduce future taxes, costs of expected financial distress and agency costs. This thesis investigates the relative importance of these incentives in explaining the use of financial hedging instruments by Australian firms. Hypotheses are developed which provide empirical predictions as to the financing and production-investment characteristics of hedging firms. The empirical validity of these hypotheses is tested using both publicly available information and information on firms' use of hedging instruments in the 1990/91 financial year collected by a survey. Evidence is found which is consistent with hedging being motivated by tax, financial distress and agency cost incentives.

A second research question addressed in this thesis is the decision of firms to voluntarily disclose the use of hedging instruments in their annual reports. A comparison of survey responses and the annual reports of responding firms reveals wide cross-sectional variation in firms' accounting disclosure behaviour. Hypotheses are developed and tested which attempt to explain this variation within the efficient contracting framework of Jensen and Meckling (1976). The evidence found is consistent with firms' accounting disclosure practice being motivated by incentives to reduce its costs of contracting with debt and equity holders.


 
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