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Derivatives use and financial instrument disclosure in the extractives industry

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  • Jacqueline Birt
  • Michaela Rankin
  • Chen L. Song

Abstract

type="main" xml:lang="en"> This article documents the use and disclosure of derivatives in the Australian extractives industry. We find that derivatives are used by 23 per cent of our sample, with mitigation of commodity risk and foreign exchange risk being the most common purposes for which derivatives are used. The most common types of derivatives used in the sector for hedging purposes are forward rate agreements and options. Results indicate that derivative use is positively associated with financial risk and firm size. We also examine the relation between firm characteristics and the extent of financial instrument disclosure, using a disclosure index based on the additional requirements in IFRS 7 Financial Instruments: Disclosures. Empirical results reveal that large firms with higher leverage, which use derivatives, and are audited by a Big 4 auditor provide more extensive disclosure of financial instruments.

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  • Jacqueline Birt & Michaela Rankin & Chen L. Song, 2013. "Derivatives use and financial instrument disclosure in the extractives industry," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(1), pages 55-83, March.
    • Handle: RePEc:bla:acctfi:v:53:y:2013:i:1:p:55-83
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    File URL: http://hdl.handle.net/10.1111/acfi.12001
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    Cited by:

    1. Dinh Tran Ngoc Huy, 2014. "Risk Level Of Vietnam Entertainment Industry Under Financial Leverage During And After The Global Crisis 2007-2009," Romanian Economic Business Review, Romanian-American University, vol. 9(2), pages 101-116, June.
    2. Teng Zhou & Jacqueline Birt & Michaela Rankin, 2015. "The value relevance of exploration and evaluation expenditures," Accounting Research Journal, Emerald Group Publishing Limited, vol. 28(3), pages 228-250, November.
    3. Abdullah, Azrul Bin & Ismail, Ku Nor Izah Ku, 2018. "The Effectiveness of Risk Management Committee and Hedge Accounting Practices in Malaysia," SocArXiv 89cbp, Center for Open Science.
    4. Abdullah, Azrul Bin & Ismail, Ku Nor Izah Ku & Isa, Norshamshina Mat, 2018. "Risk Management Committee and Disclosure of Hedging Activities Information among Malaysian Listed Companies," SocArXiv qfw5j, Center for Open Science.
    5. Abdullah, Azrul Bin, 2018. "Company-specific characteristics and the choice of hedge accounting for derivatives reporting: Malaysian case," SocArXiv npa6v, Center for Open Science.
    6. Abdullah, Azrul & Ku Ismail, Ku Nor Izah, 2017. "Companies’ Characteristics and the Choice of Hedge Accounting for Derivatives Reporting: Evidence from Malaysian Listed Companies," MPRA Paper 90213, University Library of Munich, Germany.
    7. Abdullah, Azrul & Ku Ismail, Ku Nor Izah, 2015. "Hedging Activities Information and Risk Management Committee Effectiveness: Malaysian evidence," MPRA Paper 85026, University Library of Munich, Germany.
    8. Abdullah, Azrul & Ku Ismail, Ku Nor Izah & Mat Isa, Norshamshina, 2015. "Risk Management Committee and Disclosure of Hedging Activities Information among Malaysian Listed Companies," MPRA Paper 77962, University Library of Munich, Germany.
    9. Bamber, Matthew & McMeeking, Kevin & Petrovic, Nikola, 2018. "Mandatory Financial Reporting Processes and Outcomes," The International Journal of Accounting, Elsevier, vol. 53(3), pages 227-245.
    10. Phan, Dinh & Nguyen, Hoa & Faff, Robert, 2014. "Uncovering the asymmetric linkage between financial derivatives and firm value — The case of oil and gas exploration and production companies," Energy Economics, Elsevier, vol. 45(C), pages 340-352.
    11. Hassan Tanha & Michael Dempsey & Mena Labeb, 2018. "Derivatives Usage by Australian Industrial Firms: Pre-, during and post-GFC," Review of Economics & Finance, Better Advances Press, Canada, vol. 11, pages 31-39, February.
    12. Abdullah, Azrul Bin & Ismail, Ku Nor Izah Ku, 2018. "Hedging Activities Information and Risk Management Committee Effectiveness: Malaysian evidence," SocArXiv kxfqe, Center for Open Science.
    13. Agung Nur Probohudono & Bambang Sugiharto & Siti Arifah, 2019. "The Influence Of Corporate Governance, Audit Quality, And Ownership, On Financial Instrument Disclosure In Indonesia," Journal of Contemporary Accounting, Master in Accounting Program, Faculty of Business & Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, vol. 1(3), pages 173-187, May.
    14. Malaquias, Rodrigo Fernandes & Zambra, Pablo, 2018. "Disclosure of financial instruments: Practices and challenges of Latin American firms from the mining industry," Research in International Business and Finance, Elsevier, vol. 45(C), pages 158-167.
    15. Franziska Wolf & Terry Boulter & Sukanto Bhattacharya, 2017. "Derivative Practices in Australian and Canadian Industries," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-39, December.
    16. Sidney J. Gray & Niclas Hellman & Mariya N. Ivanova, 2019. "Extractive Industries Reporting: A Review of Accounting Challenges and the Research Literature," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 42-91, March.
    17. Abdullah, Azrul & Ku Ismail, Ku Nor Izah, 2016. "The Effectiveness of Risk Management Committee and Hedge Accounting Practices in Malaysia," MPRA Paper 77960, University Library of Munich, Germany.
    18. Azrul Abdullah & Ku Nor Izah Ku Ismail & Norshamshina Mat Isa, 2015. "Risikomanagement-Ausschuss und Offenlegung von Hedging-Aktivitäten Informationen unter Malaysian gelisteten Unternehmen [Risk Management Committee and Disclosure of Hedging Activities Information A," Post-Print halshs-01509153, HAL.

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