Monitoring Mechanisms, Managerial Incentives, Investment Distortion Costs, and Derivatives Usage

Jingjing Huang, Chen Su, Nathan L Joseph, Dudley Gilder

Research output: Contribution to journalArticlepeer-review


We relate derivatives usage to the level of corporate governance/monitoring mechanisms, managerial incentives and investment decisions of UK firms. We find evidence to suggest that the monitoring environment, e.g., board size, influences the use of both currency and interest rate derivatives usage. Managerial compensation also influences derivatives usage. Investment decisions are affected by the governance and
managerial compensation of firms, which in turn impact on derivatives usage. We find a strong tendency for UK firms to reduce derivatives usage in situations where derivatives usage should be increased. There is limited evidence that firms use hedging substitutes to avoid monitoring from external capital markets.
Original languageEnglish
Pages (from-to)93-141
JournalBritish Accounting Review
Issue number1
Early online date24 Dec 2017
Publication statusPublished - 1 Jan 2018

Bibliographical note

© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International


  • Corporate hedging
  • corporate governance (CG)
  • agency problem
  • under/overinvestment
  • logistic regression


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