Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge

66 Pages Posted: 14 Mar 2012 Last revised: 11 Mar 2013

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Olfa Maalaoui Chun

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Finance

Thouraya Triki

HEC Montreal

Multiple version iconThere are 2 versions of this paper

Date Written: February 2013

Abstract

This paper provides an independent assessment of the effects of the New York Stock Exchange (NYSE) and the Sarbanes Oxley act (SOX) requirements of independence and financial literacy on the use of derivatives for hedging purposes. Our original hand collected database on directors' university education and financial experience allows multiple definitions of financial knowledge. We show that financially educated directors encourage the use of derivatives as opposed to directors with only financial experience or accounting background. We also find evidence that shareholders are better off with financially qualified board and audit committee members. Specifically, we provide the first direct evidence showing that graduate education of the board including the CEO is an important determinant of the hedging activity using derivatives.

Keywords: Risk management, hedging using derivatives, SOX and NYSE regulations, university education of directors, firm performance

JEL Classification: G18, G30

Suggested Citation

Dionne, Georges and Maalaoui Chun, Olfa and Triki, Thouraya, Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge (February 2013). Available at SSRN: https://ssrn.com/abstract=2020987 or http://dx.doi.org/10.2139/ssrn.2020987

Georges Dionne

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Olfa Maalaoui Chun (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Finance ( email )

207-43 Cheongryangri-2dong 130-722
Seoul
Korea

Thouraya Triki

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

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