Prior studies have found mixed relationship between corporate risk management activities and firm value. In this paper, we document that corporate risk management activities are significantly affected by the strength of corporate governance. Firms use significantly less derivatives after the passage of SOX, i.e., when the corporate governance is stronger. The passage of SOX allows us to implement the difference-in-differences approach and mitigate endogeneity bias. The relation is both statistically and economically significant. Our findings shed new light on the agency problem associated with the risk management activities.
Gu, Yuqi and Yuan, Wenjuan
"Sarbanes-Oxley Act (SOX) and Corporate Risk Management,"
Southern University College of Business E-Journal: Vol. 12:
1, Article 1.
Available at: https://digitalcommons.subr.edu/cbej/vol12/iss1/1