Abstract

http://ssrn.com/abstract=2094589
 
 

References (43)



 


 



The Effects of Norms on Investor Reactions to Derivative Use


Lisa Koonce


University of Texas

Jeffrey S. Miller


University of Notre Dame - Department of Accountancy

Jennifer Winchel


University of Virginia - McIntire School of Commerce

April 25, 2014

Contemporary Accounting Research, Forthcoming

Abstract:     
Prior research indicates that a firm’s use of derivatives to manage business risks is viewed favorably by investors. However, these studies do not consider a potentially key factor in this setting — namely, the typical behavior (or norms) regarding derivatives by other firms in the industry or the firm itself. In this paper, we report the results of multiple experiments that test whether norms are influential in affecting investors’ evaluations of firms’ derivatives choices. Our results show that the generally favorable reactions to derivative use actually reverse and become unfavorable when firms’ derivative decisions are inconsistent with industry or firm norms. Somewhat surprisingly, though, we find that industry and firm norms are not viewed similarly by investors. These results expand our understanding of how investors respond to firm’s derivative use decisions and demonstrate the role of norms as factors that influence investors’ judgments in financial reporting settings. Our results have implications for firm managers making decisions about derivative use.

Keywords: Derivatives, hedging, norms, psychology

Accepted Paper Series


Not Available For Download

Date posted: June 27, 2012 ; Last revised: April 28, 2014

Suggested Citation

Koonce, Lisa and Miller, Jeffrey S. and Winchel, Jennifer, The Effects of Norms on Investor Reactions to Derivative Use (April 25, 2014). Contemporary Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2094589 or http://dx.doi.org/10.2139/ssrn.2094589

Contact Information

Lisa L. Koonce (Contact Author)
University of Texas ( email )
Dept. of Accounting
McCombs School of Business
Austin, TX 78712
United States
512-471-5576 (Phone)
512-471-3904 (Fax)
Jeffrey S. Miller
University of Notre Dame - Department of Accountancy ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
Jennifer Winchel
University of Virginia (UVA) - McIntire School of Commerce ( email )
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
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