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 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: 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 Chun, 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 )

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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