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Board Composition And Corporate Use Of Interest Rate Derivatives

Author

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  • Kenneth A. Borokhovich
  • Kelly R. Brunarski
  • Claire E. Crutchley
  • Betty J. Simkins

Abstract

We provide new evidence on the motives for corporate hedging by examining the relation between the quality of the firms' monitoring mechanisms and the quantity of interest rate derivatives employed. Because the capital structure decision and hedging decision are considered to be endogenous, the firm's capital structure and level of interest rate derivative use are modeled simultaneously. We show a positive relation between the relative influence of outside directors and the quantity of derivatives used. This evidence indicates that outside directors take an active role in derivatives usage and that firms employ hedging in the shareholders' best interests.

Suggested Citation

  • Kenneth A. Borokhovich & Kelly R. Brunarski & Claire E. Crutchley & Betty J. Simkins, 2004. "Board Composition And Corporate Use Of Interest Rate Derivatives," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(2), pages 199-216, June.
    • Handle: RePEc:bla:jfnres:v:27:y:2004:i:2:p:199-216
    DOI: 10.1111/j.1475-6803.2004.t01-1-00079.x
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