Derivative disclosures and managerial opportunism

He, Guanming ORCID: 0000-0002-4879-6795 and Ren, Helen Mengbing ORCID: 0000-0001-6721-6269 (2024) Derivative disclosures and managerial opportunism. Journal of Futures Markets, 44 (3). pp. 384-419.

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Abstract

<jats:title>Abstract</jats:title><jats:p>Derivatives are increasingly used by managers not only to hedge risks but also to pursue nonhedging activities for fulfilling opportunistic incentives. The Statement of Financial Accounting Standards No. 161 (SFAS 161) requires firms to disclose their objectives and strategies for using derivatives. Using the adoption of this standard, we examine whether and how derivative disclosures influence managerial opportunistic behavior. We employ insider trades and stock price crash risk to capture managerial opportunism. Applying a difference‐in‐differences research design with hand‐collected data on derivative designations, we find that, after the implementation of SFAS 161, derivative users that comply with SFAS 161 experience a significantly greater decrease in both insider trades and stock price crash risk, compared with a matched control sample of nonderivative‐users. We further provide evidence to suggest that SFAS 161 curbs managerial opportunism via reducing information asymmetry between corporate insiders and outside investors and enhancing the effectiveness of derivative hedging.</jats:p>

Item Type:	Article
Uncontrolled Keywords:	3 Good Health and Well Being
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	27 Oct 2023 07:45
Last Modified:	17 Mar 2024 18:44
DOI:	10.1002/fut.22472
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3176467