The determinants and dynamics of derivatives use in Australia

Huang, G 2016, The determinants and dynamics of derivatives use in Australia, Doctor of Philosophy (PhD), Graduate School of Business and Law, RMIT University.


Document type: Thesis
Collection: Theses

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Title The determinants and dynamics of derivatives use in Australia
Author(s) Huang, G
Year 2016
Abstract Derivatives are financial instruments and are a crucial and fundamental method by which firms manage their risk under current modern economic conditions. The use of derivatives by firms is essential to their business success, as derivatives play an important role in risk management in the market. Over the last three decades or so, derivative instruments have substantially advanced and now cater for a wide range of risk management strategies. As many complex derivative instruments have been introduced, it is important to understand how firms have been adapting to these new instruments to ensure they are used appropriately and responsibly.

This research aims to examine the factors influencing derivatives use by Australian firms from 2007 to 2013. To this end, a theoretical framework built on the financial economics theory and agency theory has been developed. This framework incorporates factors that influence firms’ derivatives use behaviour at both organizational and individual levels. Hypotheses are proposed based on the framework and two models are established to study the likelihood and the level of derivatives use by Australian firms and the influencing factors.

This thesis reveals several important findings. Managerial compensation affects the likelihood and the level of derivatives use differently. Option holdings by CEO and Boards of Directors have significant influence on the likelihood and the level of derivatives use. Moreover, CEO and CFO shareholdings have had a significant impact on the extent to which derivatives were used from 2011 to 2013. However, managerial option holdings were not significant during the Global Financial Crisis (GFC). Firm size and liquidity are significant factors affecting derivatives use, suggesting that logistics and funding restrictions are key influencing factors on derivatives use from the perspective of organizational characteristics. Leverage and growth opportunity are not statistically significant factors affecting the behaviour of derivatives use for the whole period of seven-years studied. However, they are significant on the level of derivatives use in sevral single-year analyses.

This thesis makes several significant theoretical and practical contributions. Theoretically, this thesis uses both financial economics theory and agency theory, to show factors influencing firms’ derivatives use behaviour exists at both the organizational and individual level in Australia. Thus, it offers a more comprehensive and convincing explanation to, and substantially enhances our understanding of, corporate derivatives use behaviour. Practically, the findings from this thesis offer valuable insights for firms to develop corporate governance and management compensation policy. Moreover, the findings from this thesis can be of significant value to policy makers for better regulating derivative use by firms.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Graduate School of Business and Law
Subjects Finance
Keyword(s) Management
Hedging
Compensation
Governance
Australia
Derivatives
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Created: Tue, 20 Sep 2016, 11:19:03 EST by Keely Chapman
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