Finance Management and its importance?

Finance Management and its importance?
Risk Management and Corporate Governance: the Importance of Independence and Financial Knowledge for the Board and the Audit Committee Author info Abstract Publisher info Download info Related research StatisticsAuthor Info Georges Dionne
Thouraya Triki
Abstract
The new NYSE rules for corporate governance require the audit committee to discuss and review the firm's risk assessment and hedging strategies. They also put additional requirements for the composition and the financial knowledge of the directors sitting on the board and on the audit committee. In this paper, we investigate whether these new rules as well as those set by the Sarbanes Oxley act lead to hedging decisions that are of more benefit to shareholders. We construct a novel hand collected dataset that allows us to explore multiple definitions for the financially knowledgeable term present in this new regulation. We find that the requirements on the audit committee size and independence are beneficial to shareholders, although maintaining a majority of unrelated directors in the board and a director with an accounting background on the audit committee may not be necessary. Interestingly, financially educated directors seem to 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 hedging and the firm's performance suggests that shareholders are better off with financially educated directors on their boards and audit committees. Our empirical findings also show that having directors with a university education on the board is an important determinant of the hedging level. Indeed, our measure of risk management is found to be an increasing function of the percentage of directors holding a diploma superior to a bachelor degree. This result is the first direct evidence concerning the importance of university education for the board of directors.Download Info To download:If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large. File URL: http://132.203.59.36/CIRPEE/cahierscirpee/2005/files/CIRPEE05-15.pdf
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Date of creation: 2005
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More information through EDIRCFor technical questions regarding this item, or to correct its listing, contact: johanne.perron@ecn.ulaval.ca (Johanne Perron).Related research Keywords: Corporate governance risk management corporate hedging financial knowledge board independence audit committee independence board of directors university education empirical test unrelated directors NYSE rules Sarbanes Oxley act audit committee size financially educated directors financially active directors firm performanceFind related papers by JEL classification:
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G30 - Financial Economics - - Corporate Finance and Governance - - - General
This paper has been announced in the following NEP Reports: NEP-ACC-2005-06-14 (Accounting & Auditing) NEP-ALL-2005-06-14 (All new papers) NEP-FIN-2005-06-14 (Finance) NEP-FMK-2005-06-14 (Financial Markets) NEP-RMG-2005-06-14 (Risk Management)References listed on IDEAS
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(explanations, Please report citation or reference errors to Jose.Barrueco@uv.es, or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) J. David Cummins & Georges Dionne & Robert Gagn & Abdelhakim Nouira, 2006. "Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities," Cahiers de recherche 0616, CIRPEE. [Downloadable!] J. David Cummins & Georges Dionne & Robert Gagn & Abdelhakim Nouira, 2006. "Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities," Cahiers de recherche 06-06, HEC Montral, Institut d'conomie applique. [Downloadable!] Chang Dan & Hong Gu & Kuan Xu, 2005. "The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies," Department of Economics at Dalhousie University working papers archive hedging, Dalhousie, Department of Economics. [Downloadable!]Statistics Access and download statisticsDid you know? The most prolific authors have over 400 items listed on IDEAS.This page was last updated on 2008-10-29.