Voluntary hedging disclosure and corporate governance
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 18 June 2019
Issue publication date: 22 January 2020
Abstract
Purpose
This paper aims to investigate the implications of governance quality on a firm’s information environment in the context of voluntary changes in hedging disclosures made by oil and gas companies.
Design/methodology/approach
The research utilizes a Factiva-guided search to hand-collect public disclosures related to changes in hedging policies along with the hand collection of financial derivatives positions and operational hedging contracts data using 10-K filings. The paper addresses self-selection bias, which typically plagues voluntary disclosure studies, by implementing a Heckman (1979) two-step model to estimate the decision process, make changes in their hedge program and, conditional on making changes to their hedging activities, provide disclosure.
Findings
Oil and gas firms with relatively poor governance are more likely to voluntarily disclose hedging changes and do so more frequently (substitution hypothesis). There is evidence that poorly governed firms in the presence of large shareholders (i.e. high institutional ownership) are more likely to provide transparency of hedging policy changes.
Originality/value
This is the first study to combine hand-collected changes in hedging voluntary disclosures and hand-collected derivative position data to investigate the interaction of corporate governance and voluntary disclosure. The sample allows for analysis between three sub-samples: companies that do not make changes in hedging and do not hedge, firms that make changes in their hedging policies but do not disclose the changes during a given year and companies that change their hedging activities and provide voluntary disclosure. This unique setting helps to alleviate concerns of self-selection bias associated with voluntary disclosure.
Keywords
Acknowledgements
The author is grateful to two anonymous referees for quality feedback and suggestions that have substantially improved this paper. The author thanks Jeffrey Black, Chitru Fernando, Janya Golubeva, Subramanian Iyer, Scott Linn, Lubomir Litov, Hamed Mahmudi, Cedric Mbanga, William Megginson, Puneet Prakash, Vikas Raman, Jesus Salas, Wayne Thomas, Pradeep Yadav, and seminar participants at the University of Oklahoma, Missouri State University, the Financial Management Association Annual Meetings, Southwestern Finance Association Meetings and the MBAA International Conference for useful discussions and comments. The author gratefully acknowledges financial and data support from the Center for Financial Studies and the Bullard Dissertation Completion Fellowship at the Michael F. Price College of Business.
Citation
Hoelscher, S.A. (2020), "Voluntary hedging disclosure and corporate governance", Review of Accounting and Finance, Vol. 19 No. 1, pp. 5-29. https://doi.org/10.1108/RAF-01-2018-0001
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited