Derivatives Use, Corporate Governance, and Legislative Change: An Empirical Analysis of New Zealand Listed Companies

29 Pages Posted: 6 Feb 2005

See all articles by Alastair Marsden

Alastair Marsden

University of Auckland - Business School

Andrew K. Prevost

University of Vermont

Abstract

This paper examines if board composition has any systematic bearing on derivatives usage by New Zealand listed companies. We also test if derivative usage changed following the introduction of the new 1993 Companies Act. The Act raised expectations of directors' fiduciary responsibilities and the perceived risk of liability on outside directors for poor investment decisions. Using a dataset of listed New Zealand companies in 1994 and 1997, we find companies with higher growth opportunities and a greater proportion of outside directors were less likely to use financial derivatives following the introduction of the new Act. Our results supplement the US-based literature on derivatives usage by illustrating that internal governance mechanisms can play a role in corporate derivatives policy, and that the legislative and regulatory environment may affect this role.

Suggested Citation

Marsden, Alastair D.E. and Prevost, Andrew K., Derivatives Use, Corporate Governance, and Legislative Change: An Empirical Analysis of New Zealand Listed Companies. Journal of Business Finance & Accounting, Vol. 32, No. 1-2, pp. 255-295, January 2005. Available at SSRN: https://ssrn.com/abstract=661990

Alastair D.E. Marsden (Contact Author)

University of Auckland - Business School ( email )

Private Bag 92019
Room: C208
Auckland
New Zealand
64 9 373 7999 (Phone)
64 9 373 7406 (Fax)

Andrew K. Prevost

University of Vermont ( email )

Burlington, VT 05405
United States

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