ORCID Profile
0000-0001-8978-9383
Current Organisation
University of St Andrews
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Publisher: Emerald
Date: 13-03-2007
DOI: 10.1108/10867370710737391
Abstract: The purpose of this paper is to examine the interest rate risk management (IRRM) practices of UK companies. In particular, the study examines five theories that have been advanced in the literature to explain why companies hedge: tax and regulatory arbitrage under‐investment, volatility of earnings and future planning financial distress managerial self‐interest and economies of scale. The paper uses a questionnaire survey to examine the importance of hedging theories and to look at the detailed risk management practices of companies. The research findings confirm that all five theories of financial risk management have some support in practice. However, while the responses to some questions supported the theories, other information elicited from the questionnaires did not. This finding demonstrates that studies which employ large disaggregated datasets that result in generalised conclusions often miss the dynamic nature of corporate affairs and that, as such, more qualitative research is needed in this area. The use of a questionnaire survey facilitates an investigation of the IRRM practices of companies on an in idual basis rather than the aggregated analysis afforded by most quantitative studies in finance. In addition, the qualitative approach adopted here permits an examination of many factors that relate to risk management practices, rather than just a limited number of financial ratios or factors that are typically used in studies of large datasets.
Publisher: Elsevier BV
Date: 2016
DOI: 10.2139/SSRN.2863077
Publisher: Emerald
Date: 09-06-2008
DOI: 10.1108/09675420810886123
Abstract: This paper aims to examine the interest rate risk management (IRRM) practices of UK‐listed companies. In particular, it examines the significance of interest rate risk (IRR) to these companies as well as the risk management practices adopted, including: the methods used to assess the level of IRR and the types of interest rate forecasts used in the process derivatives activity and corporate governance, reporting and control. A series of semi‐structured interviews was conducted with the treasurers of ten UK companies in order to provide an in‐depth analysis of IRRM. The results of this research suggest that IRR is important to UK companies and that their IRR hedging strategies are geared towards managing shareholder considerations and protecting banking covenants and corporate credit ratings. Moreover, companies rely extensively on financial derivatives to manage their IRR although their corporate governance practices relating to derivatives usage, in some instances, are lacking. Finally, there was a mixed response in relation to the implications of International Accounting Standard (IAS) 39 while some companies fear that the new standard may curb managerial practices, others are in favour of the more stringent reporting requirements. The research indicates that IRRM is important to UK companies, and especially so for firms that have loan covenants in place. Thus, the interest rate decisions of the Bank of England will have a major effect on UK industry. The study also suggests that the implementation of IAS 39 may have unanticipated consequences on the risk management behaviour of UK firms as the possible reduction in the use of options and exchange‐traded products may result in less efficient IRRM within companies. Finally, the research suggests that corporate governance practices relating to financial risk management need to be improved. The use of an interview‐based approach facilitates an investigation of the IRRM practices of companies on an in idual basis rather than the aggregated analysis offered by most studies in the area. In addition, the paper addresses the more qualitative aspects of IRRM, such as the form and significance of IRR, IRR policy and strategy, and the use of derivative instruments.
Location: United Kingdom of Great Britain and Northern Ireland
Location: United Kingdom of Great Britain and Northern Ireland
Location: United Kingdom of Great Britain and Northern Ireland
No related grants have been discovered for lorna stevenson.