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

64 Pages Posted: 12 Jun 2012

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Olfa Maalaoui

Bloomberg L.P.; 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: March 11, 2012

Abstract

This paper investigates whether the NYSE and Sarbanes Oxley Act requirements for the independence and the financial knowledge of directors sitting on the board and the audit committee improve corporate hedging decisions. Our original hand collected dataset allows multiple definitions for financial knowledge. We show that financially educated directors encourage corporate hedging while financially active directors and those with an accounting background play no active role in such policy. This evidence combined with the positive relation we report between the firm’s hedging ratio and its performance suggests that shareholders are better off with financially educated directors on their boards and audit committees. Finally, we provide the first direct evidence showing that university education of directors is an important determinant of the hedging activity.

Keywords: Corporate governance, risk management, Sarbanes Oxley act, university education

Suggested Citation

Dionne, Georges and Maalaoui, Olfa and Maalaoui, Olfa and Triki, Thouraya, Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge (March 11, 2012). Available at SSRN: https://ssrn.com/abstract=2082515 or http://dx.doi.org/10.2139/ssrn.2082515

Georges Dionne

HEC Montreal - Department of Finance ( email )

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

Olfa Maalaoui (Contact Author)

Bloomberg L.P. ( email )

731 Lexington Avenue
New York, NY 10022
United States

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

Bloomberg L.P.
731 Lexington Ave
NY, NY 10022
United States

Thouraya Triki

HEC Montreal ( email )

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

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