Pub Date : 2021-08-09DOI: 10.12944/jbsfm.03.01-02.04
Tariq Hassaneen Ismail, Hala Abd-El-Fattah, Hanan El Gamal
This paper aims at investigating and scrutinizing prior literature of human rights disclosures, corporate governance mechanisms and their effect on firm performance in an attempt to unveil the influence of non-financial disclosures such as human rights on the corporation’s financial performance. We highlighted that the “board of directors” plays a vital role as one of the “corporate governance” mechanisms in spreading the awareness of the importance of “human rights” issues that might impact the corporation. Additionally, we propose the need for a change in corporate governance mechanisms to be more accountable towards human rights. Also, our analysis suggests that human rights disclosures impact the corporation’s image which in turn could be translated into increasing sales that would eventually influence the financial performance of the corporation. Therefore, this paper sheds the light on directions for future research that will explore the association between human rights disclosures and firm performance through incorporating corporate governance mechanisms.
{"title":"Human Rights Disclosures, Corporate Governance Mechanisms, and Firm Performance: Directions for Future Research","authors":"Tariq Hassaneen Ismail, Hala Abd-El-Fattah, Hanan El Gamal","doi":"10.12944/jbsfm.03.01-02.04","DOIUrl":"https://doi.org/10.12944/jbsfm.03.01-02.04","url":null,"abstract":"This paper aims at investigating and scrutinizing prior literature of human rights disclosures, corporate governance mechanisms and their effect on firm performance in an attempt to unveil the influence of non-financial disclosures such as human rights on the corporation’s financial performance. We highlighted that the “board of directors” plays a vital role as one of the “corporate governance” mechanisms in spreading the awareness of the importance of “human rights” issues that might impact the corporation. Additionally, we propose the need for a change in corporate governance mechanisms to be more accountable towards human rights. Also, our analysis suggests that human rights disclosures impact the corporation’s image which in turn could be translated into increasing sales that would eventually influence the financial performance of the corporation. Therefore, this paper sheds the light on directions for future research that will explore the association between human rights disclosures and firm performance through incorporating corporate governance mechanisms.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123980425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Following its enactment in early 2018, the Banking Executive Accountability Regime (BEAR) came into force for the largest Australian banks from July 2018, and for all other authorised deposit-taking institutions (ADIs) from July 2019. This research examines the experiences of ADIs in implementing the BEAR. The research specifically considers benefits and drawbacks of the BEAR and moderators that might prevent it from achieving its goals.
{"title":"Regulating Accountability: An Early Look at the Banking Executive Accountability Regime (BEAR)","authors":"Elizabeth Sheedy, Dominic Canestrari-Soh","doi":"10.2139/ssrn.3775275","DOIUrl":"https://doi.org/10.2139/ssrn.3775275","url":null,"abstract":"Following its enactment in early 2018, the Banking Executive Accountability Regime (BEAR) came into force for the largest Australian banks from July 2018, and for all other authorised deposit-taking institutions (ADIs) from July 2019. This research examines the experiences of ADIs in implementing the BEAR. The research specifically considers benefits and drawbacks of the BEAR and moderators that might prevent it from achieving its goals.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"85 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123157165","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Skewness preference, the tendency to overweight the probability of extreme tail events, can affect managerial decision making. We find that Chinese listed firms managed by CEOs who experienced a largely unpredictable rare event, namely the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, during their earlier executive careers have lower stock price crash risk measured by negative skewness. This effect especially matters for CEOs whose experienced events are more salient. Furthermore, professional epidemic experience induces CEOs to deter stock price crashes through altering financial reporting strategies. Overall, entrepreneurs’ skewness preference can reduce the negative skewness of stock returns.
{"title":"A Tale of Two 'Skewness': Managerial Epidemic Experience, Probability Weighting, and Stock Price Crash Risk","authors":"Leilei Gu, Xiaoran Ni, Yuchao Peng","doi":"10.2139/ssrn.3687536","DOIUrl":"https://doi.org/10.2139/ssrn.3687536","url":null,"abstract":"Skewness preference, the tendency to overweight the probability of extreme tail events, can affect managerial decision making. We find that Chinese listed firms managed by CEOs who experienced a largely unpredictable rare event, namely the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, during their earlier executive careers have lower stock price crash risk measured by negative skewness. This effect especially matters for CEOs whose experienced events are more salient. Furthermore, professional epidemic experience induces CEOs to deter stock price crashes through altering financial reporting strategies. Overall, entrepreneurs’ skewness preference can reduce the negative skewness of stock returns.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130442747","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the impact of internal governance mechanisms on the operational risk management provided with deposit banks of Turkey as a Basel compliant representative banking system. Drawing from internal audit, internal control and risk management literature, we consider the impact of characteristics of these mechanisms on the degree of operational loss at the subcommittee level. Two factors stand out as improving the internal governance of banks. Internal governance quality improves resulting in less material operational loss with adequate staffing. Organization of the internal governance mechanisms, carefully structured control points and sufficient reporting to senior level management in banks ensure that banks’ shareholders experience fewer surprises. Excess funding has limited or no effect on mitigating operational loss. Characteristics are more significant for internal audit and internal control subcommittees than they are for risk management subcommittee. Results are robust when tests are repeated with aggregated data in order to capture potential cooperation between and contribution of the individual units.
{"title":"The Impact of Bank's Internal Governance Mechanism on Operational Loss: Evidence from Turkey","authors":"Y. O. Erzurumlu, Gürcan Avci","doi":"10.22059/IER.2020.76096","DOIUrl":"https://doi.org/10.22059/IER.2020.76096","url":null,"abstract":"We study the impact of internal governance mechanisms on the operational risk management provided with deposit banks of Turkey as a Basel compliant representative banking system. Drawing from internal audit, internal control and risk management literature, we consider the impact of characteristics of these mechanisms on the degree of operational loss at the subcommittee level. Two factors stand out as improving the internal governance of banks. Internal governance quality improves resulting in less material operational loss with adequate staffing. Organization of the internal governance mechanisms, carefully structured control points and sufficient reporting to senior level management in banks ensure that banks’ shareholders experience fewer surprises. Excess funding has limited or no effect on mitigating operational loss. Characteristics are more significant for internal audit and internal control subcommittees than they are for risk management subcommittee. Results are robust when tests are repeated with aggregated data in order to capture potential cooperation between and contribution of the individual units.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122347217","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
On February 28, 2018, Dick’s Sporting Goods announced that it would no longer sell long guns to 18- to 20-year-olds. On March 8, 2018, Dick’s was sued for violating the Michigan Elliott-Larsen Civil Rights Act, which prohibits discrimination on the basis of age in public accommodations. Dick’s and Walmart were also sued for violating Oregon’s ban on age discrimination. In addition to corporate liability under various state civil rights acts, directors of Dick’s and Walmart face the threat of suit for breaching their fiduciary duties—suits that may be much harder to defend than the more usual breach of fiduciary duty suit. Delaware corporation law appears to have an underappreciated per se doctrine where the board directs the corporation to violate the law. A knowing violation of positive law is bad faith, which falls under the duty of loyalty. The business judgment rule will not apply and exculpation will not be available under Section 102(b)(7). The shareholders may not even need to show harm. This paper examines the relevant legal doctrine but also takes a step back to consider what the rule should be from an ethical and a moral standpoint. To do so, rather than apply traditional corporate governance arguments, this paper considers broader moral theories. In addition to the utilitarian calculus that is so ubiquitous in corporate governance scholarship via the law and economics movement, this paper considers the liberalism of both John Rawls and Robert Nozick. But liberalism may seem less persuasive given the rise of illiberalism politically on both the American right and left. Given that, this paper also considers two non-liberal models: one a populist modification of Charles Taylor’s democratic communitarianism and the other Catholic Social Thought. Unsurprisingly, the proper rule depends on which moral theory is applied. If that theory is liberalism (of either form covered), then a per se approach is troubling. Harm to the corporation must be shown, and either the Delaware legislature or the corporate players, depending on the form of liberalism, must acquiesce to a per se rule. Counterintuitively, it is the per se rule that runs counter to basic democratic norms. It gives the power to litigate in response to harm not to the party harmed but to a third party. Given the divergent results from applying different moral theories, and given the democratic difficulty, the Delaware legislature should clarify the standard. It will likely find that a harsh, per se standard is unjustified.
{"title":"Rogue Corporations: Unlawful Corporate Conduct and Fiduciary Duty","authors":"H. Pace","doi":"10.2139/SSRN.3332667","DOIUrl":"https://doi.org/10.2139/SSRN.3332667","url":null,"abstract":"On February 28, 2018, Dick’s Sporting Goods announced that it would no longer sell long guns to 18- to 20-year-olds. On March 8, 2018, Dick’s was sued for violating the Michigan Elliott-Larsen Civil Rights Act, which prohibits discrimination on the basis of age in public accommodations. Dick’s and Walmart were also sued for violating Oregon’s ban on age discrimination. In addition to corporate liability under various state civil rights acts, directors of Dick’s and Walmart face the threat of suit for breaching their fiduciary duties—suits that may be much harder to defend than the more usual breach of fiduciary duty suit. \u0000 \u0000Delaware corporation law appears to have an underappreciated per se doctrine where the board directs the corporation to violate the law. A knowing violation of positive law is bad faith, which falls under the duty of loyalty. The business judgment rule will not apply and exculpation will not be available under Section 102(b)(7). The shareholders may not even need to show harm. \u0000 \u0000This paper examines the relevant legal doctrine but also takes a step back to consider what the rule should be from an ethical and a moral standpoint. To do so, rather than apply traditional corporate governance arguments, this paper considers broader moral theories. In addition to the utilitarian calculus that is so ubiquitous in corporate governance scholarship via the law and economics movement, this paper considers the liberalism of both John Rawls and Robert Nozick. But liberalism may seem less persuasive given the rise of illiberalism politically on both the American right and left. Given that, this paper also considers two non-liberal models: one a populist modification of Charles Taylor’s democratic communitarianism and the other Catholic Social Thought. \u0000 \u0000Unsurprisingly, the proper rule depends on which moral theory is applied. If that theory is liberalism (of either form covered), then a per se approach is troubling. Harm to the corporation must be shown, and either the Delaware legislature or the corporate players, depending on the form of liberalism, must acquiesce to a per se rule. Counterintuitively, it is the per se rule that runs counter to basic democratic norms. It gives the power to litigate in response to harm not to the party harmed but to a third party. Given the divergent results from applying different moral theories, and given the democratic difficulty, the Delaware legislature should clarify the standard. It will likely find that a harsh, per se standard is unjustified.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133194888","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.
{"title":"Disagreement-induced CEO Turnover","authors":"Sheng Huang, Johan Maharjan, A. Thakor","doi":"10.2139/ssrn.3320832","DOIUrl":"https://doi.org/10.2139/ssrn.3320832","url":null,"abstract":"Abstract We propose and test a new explanation for forced CEO turnover, and examine its implications for the impact of firm performance on CEO turnover. Investors may disagree with management on optimal decisions due to heterogeneous prior beliefs. Theory suggests that such disagreement may be persistent and costly to firms; we document that this induces them to sometimes replace CEOs who investors disagree with, controlling for firm performance. A lower level of CEO-investor disagreement serves to partially “protect” CEOs from being fired, thus reducing turnover-performance sensitivity, which we also document. We also show that firms are more likely to hire an external CEO as a successor if disagreement with the departing CEO is higher. Disagreement declines following forced CEO turnover. Using various empirical strategies, we rule out other confounding interpretations of our findings. We conclude that disagreement, independently of firm performance, affects forced CEO turnover.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122855866","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study attempted to investigate the effect of profitability on firm- specific factors and macro-economic factors of hotel sectors in United Kingdom. This study employs time series regression analysis of firms in hotel sectors in United Kingdom from 2012 to 2016. The analysis shows that firm-specific factors and macro-economic factor influence the profitability of the firms. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.
{"title":"'Factors Determining Profitability': A Study on Whitbread PLC Hotel in United Kingdom","authors":"Nur Aniesha Rashid","doi":"10.2139/ssrn.3181638","DOIUrl":"https://doi.org/10.2139/ssrn.3181638","url":null,"abstract":"This study attempted to investigate the effect of profitability on firm- specific factors and macro-economic factors of hotel sectors in United Kingdom. This study employs time series regression analysis of firms in hotel sectors in United Kingdom from 2012 to 2016. The analysis shows that firm-specific factors and macro-economic factor influence the profitability of the firms. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116767819","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jeremiah W. Bentley, Theodore E. Christensen, Kurt H. Gee, Benjamin C. Whipple
Researchers frequently proxy for managers’ non‐GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP‐provided earnings are a valid proxy for managers’ non‐GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large‐sample data set of managers’ non‐GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non‐GAAP numbers and (2) sometimes provides higher quality non‐GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non‐GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non‐GAAP reporting to use our newly available data set of manager‐disclosed non‐GAAP metrics because it more accurately captures managers’ reporting choices.
{"title":"Disentangling Managers’ and Analysts’ Non-GAAP Reporting","authors":"Jeremiah W. Bentley, Theodore E. Christensen, Kurt H. Gee, Benjamin C. Whipple","doi":"10.2139/ssrn.2610995","DOIUrl":"https://doi.org/10.2139/ssrn.2610995","url":null,"abstract":"Researchers frequently proxy for managers’ non‐GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP‐provided earnings are a valid proxy for managers’ non‐GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large‐sample data set of managers’ non‐GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non‐GAAP numbers and (2) sometimes provides higher quality non‐GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non‐GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non‐GAAP reporting to use our newly available data set of manager‐disclosed non‐GAAP metrics because it more accurately captures managers’ reporting choices.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129201810","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I extend prior work by examining the role of corporate governance in moderating the negative effect of investment opportunities and leverage with firm performance during crisis and non-crisis times. I used a firm-level panel that spans the period 2008 to 2012 of all listed firms on Abu Dhabi Stock Exchange and Dubai Financial Market. I applied for the first time Refined Economic Value Added (REVA) as a new measurement of performance. Results show lack of significant influence of corporate governance on firm performance and this influence is significantly negative during crisis. I also document that corporate governance worsen the leverage relationship with firm performance during crisis and improve the relationship in non-crisis time. I provide evidence that corporate governance plays a different role in different time periods.
{"title":"Investment Opportunities and Leverage During Global Financial Crisis: Evidence From the UAE","authors":"Bakr Al‐Gamrh","doi":"10.2139/ssrn.3582191","DOIUrl":"https://doi.org/10.2139/ssrn.3582191","url":null,"abstract":"I extend prior work by examining the role of corporate governance in moderating the negative effect of investment opportunities and leverage with firm performance during crisis and non-crisis times. I used a firm-level panel that spans the period 2008 to 2012 of all listed firms on Abu Dhabi Stock Exchange and Dubai Financial Market. I applied for the first time Refined Economic Value Added (REVA) as a new measurement of performance. Results show lack of significant influence of corporate governance on firm performance and this influence is significantly negative during crisis. I also document that corporate governance worsen the leverage relationship with firm performance during crisis and improve the relationship in non-crisis time. I provide evidence that corporate governance plays a different role in different time periods.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123196264","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The aviation industry is characterized by low profit margins and a constant struggle with skyrocketing fuel costs. Financial and operational hedging strategies serve aviation managers as a tool to counteract high and volatile fuel prices. While most research on fuel hedging has concentrated on the U.S. airline market, this paper is the first study to include airlines from Asia and Europe. We analyze 64 airlines over 10 years and find that Asian carriers are more negatively exposed than European airlines but less exposed than North American airlines. In contrast to Treanor, Simkins, Rogers and Carter (2012), this study finds less significant negative exposure coefficients among U.S. carriers. Using a fixed effects model we reject the hypothesis that financial hedging decreases risk exposure. One possibility is that the decreased volatility in jet fuel prices over the past few years has perhaps made airlines less exposed to fuel prices and hence, financial hedging less effective. However, operational hedging, defined by two proxies for fleet diversity, reduces exposure significantly. A one percent increase in fleet diversity, calculated with a dispersion index using different aircraft types, reduces the risk exposure coefficient by 2.99 percent. On the other hand, fleet diversity, calculated with different aircraft families, reduces exposure by 1.45 percent. Thus, aviation managers have to balance the fleet diversity between operational flexibility and entailed costs.
{"title":"Fuel Hedging, Operational Hedging and Risk Exposure – Evidence from the Global Airline Industry","authors":"Britta Berghöfer, B. Lucey","doi":"10.2139/ssrn.2309510","DOIUrl":"https://doi.org/10.2139/ssrn.2309510","url":null,"abstract":"The aviation industry is characterized by low profit margins and a constant struggle with skyrocketing fuel costs. Financial and operational hedging strategies serve aviation managers as a tool to counteract high and volatile fuel prices. While most research on fuel hedging has concentrated on the U.S. airline market, this paper is the first study to include airlines from Asia and Europe. We analyze 64 airlines over 10 years and find that Asian carriers are more negatively exposed than European airlines but less exposed than North American airlines. In contrast to Treanor, Simkins, Rogers and Carter (2012), this study finds less significant negative exposure coefficients among U.S. carriers. Using a fixed effects model we reject the hypothesis that financial hedging decreases risk exposure. One possibility is that the decreased volatility in jet fuel prices over the past few years has perhaps made airlines less exposed to fuel prices and hence, financial hedging less effective. However, operational hedging, defined by two proxies for fleet diversity, reduces exposure significantly. A one percent increase in fleet diversity, calculated with a dispersion index using different aircraft types, reduces the risk exposure coefficient by 2.99 percent. On the other hand, fleet diversity, calculated with different aircraft families, reduces exposure by 1.45 percent. Thus, aviation managers have to balance the fleet diversity between operational flexibility and entailed costs.","PeriodicalId":272897,"journal":{"name":"CGN: Other Corporate Governance: Disclosure","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114961491","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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