Hedging Activities Information and Risk Management Committee Effectiveness: Malaysian evidence

Abstract

This study examines the extent of information about hedging activities disclosures within the annual reports of Main Market companies listed on Bursa Malaysia. The extent of hedging activities disclosures is captured through a 32-item-template, which consists of a mandatory and voluntary disclosure scores. The results of this study indicate that the extent of information on hedging activities disclosure is still insufficient among the sampled companies even though the disclosure scored is quite high. This study also examines the relationship between the existence of risk management committee (RMC), its characteristics and the extent of information on hedging activities disclosure in two separate statistical models. The regression results imply that the existence of RMC is positive but does not significantly influence the extent of information on hedging activities disclosure. However its characteristics (i.e. RMC independence and RMC meeting) have a significant influence. The findings may provide some meaningful insights to regulators, policymakers and researchers, towards the establishment of RMC as a part of the internal corporate governance mechanisms. In addition to its existence, the effectiveness of RMC also needs to be emphasised.

The Role of Audit Committee and Risk Monitoring Committee on Firm’s Hedging Practice

“…However, in 2021, the National Committee on Governance Policy through General Guidelines for Corporate Governance in Indonesia suggest firms to have a risk monitoring committee. The presence of risk monitoring committee considered capable of improving effectiveness of risk management (Ali et al, 2017), quality of hedging information (Hassan et al, 2012), and monitoring of management decisions (Abdullah & Ku Ismail, 2015). In line with previous literature, risk monitoring committee should help firm with monitoring risk management therefore increase firm hedging.…”

“…The primary independent variables are the characteristic of audit committee, include the number of audit committee members (ACSIZE) (Bromilow et al, 2011;Chan & Li, 2008), the number of audit committee meetings per year (MEET) (Setiany, 2018), and audit committee competency (ACCOMP) measured by percentage of audit committee member with accounting or finance background (Lestari & Wardhani, 2015;Setiany, 2018) and existence of risk monitoring committee (RISKCOM) which equal to one for firm with risk monitoring committee and zero otherwise (Abdullah & Ku Ismail, 2015).…”

Risk Committee Effectiveness and Financial Performance Indicator of Quoted Firms in Selected African Countries

“…They believe so hoping that it will harness greater prowess, expanded experiences and multi knowledge to control the enterprise vast array of risks (Rashid, Ibrahim & Othman, 2012). Contrarily, some scholars believe that having high number of members in RCE may cause some problems to human harmonization, coordination and communication difficulty, that may degenerate to having factions which may be counterproductive to the objective (Sanda, Garba, & Mikailu, 2011;Abdullah & Ismail, 2015). Thus, from the perspective of these proponents, to keep pace with the choice of adhering to strict risk policy, a sizeable board of director is needed to pilot risk steering activities of the firm.…”

“…As for RCE diligence, it is a yardstick to ascertaining the level of commitment offered by the board members in attending meetings of the committee, where risk matters are discussed. Ideally, the more often RCE have their meetings, the more they would stifle the risk occurring chances of the firms (Elamer & Benyazid, 2018;Chou & Buchdadi, 2017;Kakanda, Salim, & Chandren, 2017;Abdullah & Ismail, 2015;Khan & Javid, 2011). To consolidate the claim, Allegrini and Greco (2013) and Saleh, Iskandar, and Rahmat (2007) maintain that frequent meetings of the committee cannot be ignored as it invariably becomes the basis where ideas, facts, and knowledge can be shared.…”

“…Lastly, while scholars like Abdullah and Ismail (2015) argued that the inclusion of female directors connotes more efficiency and effectiveness in the oversight function of RMC, some others refuted this claim, stating that it does not.…”