Why hedge? Extent, nature, and determinants of derivative usage in U.S. municipalities

Khumawala, Saleha B.; Ranasinghe, Tharindra; Yan, Claire J.

doi:10.1016/j.jaccpubpol.2015.12.004

Cited by 13 publications

(14 citation statements)

References 23 publications

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“…Based on the study objective, a questionnaire was built based on the IFRS rules that regulate financial instruments (IASB, 2016a(IASB, , 2016b(IASB, , 2016c. The construction of the questionnaire also took into account the theoretical framework of this research, which indicates both the complexity in operations with financial instruments and the complexity in the rules that address the topic (Birt et al, 2013;Camfferman, 2015;Guay et al, 2016;Khumawala et al, 2016;Prorokowski, 2013;Tessema, 2016).…”

Section: Methodological Aspectsmentioning

confidence: 99%

“…The hypothesis developed in this study was determined with the expectation that there would be a lower perception of complexity regarding the elaboration of sensitivity analyses and the disclosure of information about risk management by professionals with more training, greater normative knowledge, and involved in firms with a high reputation for the services mentioned by previous studies (Alali & Romero, 2012;Appiah et al, 2016;Birt et al, 2013;Hassan et al, 2008;Lopes & Rodrigues, 2007). However, it can be understood that more training and proximity to the concepts can reinforce the perception that the content (regarding financial instruments) involves a complex topic (Birt et al, 2013;Khumawala et al, 2016;Prorokowski, 2013). Thus, these results, which were shown to be different from expected, were interpreted based on the same arguments that the professionals who work in these firms (Big Four) may have greater proximity to the most current discussions (Lopes & Rodrigues, 2007;Zango et al, 2015) relating to sensitivity analyses and disclosure of risk management, thus the greater complexity related to these issues.…”

Section: As According Tomentioning

confidence: 98%

“…There are also authors who suggest a positive relationship in larger-sized companies, with a greater probability of adopting hedge practices and the respective use of derivative financial instruments (Birt et al, 2013;Haushalter, 2000;Heaney & Winata, 2005;Khumawala et al, 2016). Access to international markets, even in their operations, can be interpreted as a possible scenario, raising their exposures to risks inherent in these operations (Birt et al, 2013;Heane & Winata, 2005).…”

Section: Perception Of Complexity and Effect Of Company Sizementioning

confidence: 99%

“…The results of companies, especially those that have revenues or debts in foreign currency, are sensitive to factors that go beyond their operational activities. In this context, derivative financial instruments stand out as options to minimize the effects of alterations in external variables on the net income obtained by companies; but it happens that such instruments are also known for their complexity (Birt, Rankin & Song, 2013;Khumawala, Ranasinghe & Yan, 2016;Prorokowski, 2013).…”

Section: Introductionmentioning

confidence: 99%

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Complexity in financial disclosure: the role of the characteristics of hiring firms

Zambra

Malaquias

Rech

et al. 2019

Rev. contab. finanç.

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The main purpose of this research is to analyze the relationship between characteristics of hiring firms and the perception of auditors/accountants that provide services to them regarding complexity in the elaboration/disclosure of sensitivity analyses and risk management. We seek to analyze whether characteristics of firms that have a better level of disclosure could also be associated with the complexity perceived by the professionals that provide services to such firms concerning the information to do with sensitivity analyses and risk management. Information about risk management arouses considerable debate in the area of accounting and finance; nevertheless, how it is addressed, from the point of view of the professionals, still deserves more attention. The results of this study may lead to an improvement, or even a revision, of the standards related with sensitivity analyses and risk management involving financial instruments. The study sample was composed of respondents from South America, namely accountants and auditors from Brazil and Chile. The perception of complexity was evaluated through a structured questionnaire, which was applied using electronic forms. Regarding the explanatory variables, the quantitative model considers the following characteristics of hiring firms: auditor type; firm size; industry; listed firms; transparency; exporting firms. The main advancement provided by this research lies in it revealing that some characteristics of companies usually associated with better levels of disclosure are not necessarily reflected in the perception by accountants/auditors of lower levels of complexity in the elaboration/disclosure of sensitivity analyses and risk management.

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Section: Methodological Aspectsmentioning

confidence: 99%

Section: As According Tomentioning

confidence: 98%

Section: Perception Of Complexity and Effect Of Company Sizementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Complexity in financial disclosure: the role of the characteristics of hiring firms

Zambra

Malaquias

Rech

et al. 2019

Rev. contab. finanç.

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“…Most authors underlined the absence of policies and standardised rules on the trading, management and accounting of such complex contracts by local administrations that can explain these losses (Luby and Kravchuk, ; Singla and Luby, ). Among the others, (Khumawala et al., ) empirically investigated the use of OTC contracts by 300 US municipalities and found that interest rate swaps are the most popular contracts, and that large and more sophisticated municipalities are more likely to engage in such contracts, together with small ones if managed by unsophisticated managers.…”

Section: Literature Reviewmentioning

confidence: 99%

On the Perils of Structured Loans Financing in France and Italy

Oldani

2019

Global Policy

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The restructuring process of sovereign debt is not yet managed under common global rules; public debt stabilisation is an explicit policy goal in the EU, but cannot be achieved if local public authorities do not control their liabilities and connected risks. EU local administrations’ debt soared due to the economic downturn, reduced resources transferred from the central state and increasing expenses. After 2000, French and Italian local authorities extensively underwrote complex financial instruments, such as over the counter (OTC) interest rate and exchange rate derivatives and structured loans (i.e. loans with embedded derivatives) to manage their growing liabilities; the proliferation of derivatives among European public administrations has been favoured by the absence of proper disclosure and of monitoring procedures. Losses due to structured loans accumulated and in 2017 French local authorities asked for state rescue; similarly, some Italian regions and municipalities reported relevant losses. The reduction of financial risks can be achieved by improving information and transparency, by reducing moral hazard, and limiting ‘revolving doors’.

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