The Role of Audit Committee and Risk Monitoring Committee on Firm’s Hedging Practice
Abstract
This study aims to analyze the role of audit committee and risk monitoring committee (RMC) on firm risk management measured by hedging. Firms with both committees will have better governance in monitoring risk. The population of this study is companies listed in IDX. This study uses samples of 104 non-financial companies. Using panel data regression, we find that the composition of audit committee members who have financial and/or accounting background have a significantly positive effect on hedging, meaning that an audit committee with such a higher composition will encourage firms to hedge more to reduce risk exposure. Meanwhile meetings and size of audit committee are insignificant. The presence of RMC has a negatively significant effect on firm hedging, meaning that the firm is more capable in identifying risk to determine the most appropriate way to mitigate risk, where not all risk can be mitigated by hedging.
Keywords: Audit Committee; Risk Monitoring Committee; Hedging
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References
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Lel, U. (2012). Currency hedging and corporate governance: A cross-country analysis. Journal of Corporate Finance, 18(2), 221–237. https://doi.org/10.1016/j.jcorpfin.2011.12.002
Lestari, N., & Wardhani, R. (2015). International Journal of Economics and Financial Issues The Effect of the Tax Planning to Firm Value with Moderating Board Diversity. International Journal of Economics and Financial Issues, 5, 10–11. http:www.econjournals.com
Luo, H. (Robin), & Wang, R. (2018). Foreign currency risk hedging and firm value in China. Journal of Multinational Financial Management, 47–48, 129–143. https://doi.org/10.1016/j.mulfin.2018.11.002
Menon, K., & Deahl Williams, J. (1994). The use of audit committees for monitoring. Journal of Accounting and Public Policy, 13(2), 121–139. https://doi.org/10.1016/0278-4254(94)90016-7
Muafiki, R., & Ismiyanti, F. (2023). Efek moderasi komite pemantau manajemen risiko pada pengungkapan risiko terhadap kinerja bank. Fair Value : Jurnal Ilmiah Akuntansi Dan Keuangan, 5.
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Servaes, H., Tamayo, A., & Tufano, P. (2009). The Theory and Practice of Corporate Risk Management*. Journal of Applied Corporate Finance, 21(4), 60–78. https://doi.org/10.1111/j.1745-6622.2009.00250.x
Setiany, E. (2018). Audit Committee Characteristics and Voluntary Financial Disclosure. Review of Integrative Business and Economics Research, 6, 239. https://www.researchgate.net/publication/325558334
Sikarwar, E. (2022). Board attributes, hedging activities and exchange rate risk: Multi-country firm-level evidence. Economic Modelling, 110. https://doi.org/10.1016/j.econmod.2022.105800
Smith, C. W. (1998). Corporate Risk Management: Theory and Practice Seasoned Equity Offerings View project. In Article in The Journal of Derivatives. https://www.researchgate.net/publication/228262062
Tai, V. W., Lai, Y.-H., & Yang, T.-H. (2020). The role of the board and the audit committee in corporate risk management. The North American Journal of Economics and Finance, 54, 100879. https://doi.org/10.1016/j.najef.2018.11.008
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Vafeas, N. (2005). Audit Committees, Boards, and the Quality of Reported Earnings*. Contemporary Accounting Research, 22(4), 1093–1122. https://doi.org/10.1506/1QYN-2RFQ-FKYX-XP84
Ali, M. M., Besar, S. S. N. T., & Mastuki, N. M. (2017). Audit Committee Characteristics, Risk Management Committee and Financial Restatements. Advanced Science Letters, 23(1), 287–291. https://doi.org/10.1166/asl.2017.7160
Ameer, R., & Alam, S. (2010). Determinants of Corporate Hedging Practices in Malaysia. International Business Research, 3(2). www.ccsenet.org/ibr
Annabelle, V., & Eriandani, R. (2021). Pengaruh Komite Pemantau Risiko pada Kualitas Pelaporan Keuangan dan Biaya Auditor di Indonesia. Jurnal Inovasi Akuntansi Keuangan & Perpajakan, 2(2).
Bank Indonesia. (2013). Peraturan Bank Indonesia Nomor 15/8/PBI/2013 Tentang Transaksi Lindung Nilai Kepada Bank.
Bonazzi, L., & Islam, S. M. N. (2007). Agency theory and corporate governance: A study of the effectiveness of board in their monitoring of the CEO. Journal of Modelling in Management, 2(1), 7–23. https://doi.org/10.1108/17465660710733022
Bromilow, C. L., Keller, D. P., & Tripp, G. K. (2011). Audit committee effectiveness : what works best (4th ed.). Institute of Internal Auditors Research Foundation.
Center for Risk Management & Sustainability. (2013). Fungsi dan Peran Komite Pemantau Risiko Serta Kontribusinya Dalam Penerapan Enterprise Risk Management di Indonesia. https://crmsindonesia.org/publications/fungsi-dan-peran-komite-pemantau-risiko-serta-kontribusinya-dalam-penerapan-enterprise-risk-management-di-indonesia/
Chan, K. C., & Li, J. (2008). Audit committee and firm value: Evidence on outside top executives as expert-independent directors. Corporate Governance: An International Review, 16(1), 16–31. https://doi.org/10.1111/j.1467-8683.2008.00662.x
Chow, E. H., & Chen, H.-L. (1998). The determinants of foreign exchange rate exposure: Evidence on Japanese firms. Pacific-Basin Finance Journal, 6(1–2), 153–174. https://doi.org/10.1016/S0927-538X(97)00020-6
Chowdhury, R., Doukas, J. A., & Mandal, S. (2023). CEO risk preferences, hedging intensity, and firm value. Journal of International Money and Finance, 130. https://doi.org/10.1016/j.jimonfin.2022.102751
Chung, K. H., & Zhang, H. (2011). Corporate governance and institutional ownership. Journal of Financial and Quantitative Analysis, 46(1), 247–273. https://doi.org/10.1017/S0022109010000682
Dezoort, F. T., Hermanson, D. R., Archambeault, D. S., & Reed, S. A. (2002). Audit Committee Effectiveness: A Synthesis of the Empirical Audit Committee Literature. Journal of Accounting Literature, 38(21). http://digitalcommons.kennesaw.edu/facpubs
Dionne, G., & Triki, T. (2005). Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge for the Board and the Audit Committee. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.686470
Dunning, J. H. (1980). Toward an Eclectic Theory of International Production: Some Empirical Tests. Journal of International Business Studies, 11(1), 9–31. https://doi.org/10.1057/palgrave.jibs.8490593
Eiteman, D. K., Stonehill, A. I., & Moffett, M. H. (2016). Multinational Business Finance (Megan Rees, Ed.; Fourteenth). Pearson.
Geczy, C., Minton, B. A., & Schrand, C. (1997). Why Firms Use Currency Derivatives. The Journal of Finance, 52(4), 1323. https://doi.org/10.2307/2329438
Gendron, Y., & Bédard, J. (2006). On the constitution of audit committee effectiveness. Accounting, Organizations and Society, 31(3), 211–239. https://doi.org/10.1016/j.aos.2005.03.002
Gillan, S. L., & Starks, L. T. (2000). Corporate governance proposals and shareholder activism: the role of institutional investors. Journal of Financial Economics, 57(2), 275–305. https://doi.org/S0304-405X(00)00058-1
Gujarati, D. N., & Porter, D. C. (2008). Basic Econometrics (5th ed.). McGraw- Hill Education.
Hassan, M. S., Mohd Salleh, N., Yatim, P., & Che Abdul Rahman, M. R. (2012). Risk Management Committee and Financial Instrument Disclosure. Asian Journal of Accounting and Governance, 3(1), 13–28. https://doi.org/10.17576/ajag-2012-3-6512
Krishnan, J., & Lee, J. E. (2009). Audit Committee Financial Expertise, Litigation Risk, and Corporate Governance. AUDITING: A Journal of Practice & Theory, 28(1), 241–261. https://doi.org/10.2308/aud.2009.28.1.241
Lel, U. (2012). Currency hedging and corporate governance: A cross-country analysis. Journal of Corporate Finance, 18(2), 221–237. https://doi.org/10.1016/j.jcorpfin.2011.12.002
Lestari, N., & Wardhani, R. (2015). International Journal of Economics and Financial Issues The Effect of the Tax Planning to Firm Value with Moderating Board Diversity. International Journal of Economics and Financial Issues, 5, 10–11. http:www.econjournals.com
Luo, H. (Robin), & Wang, R. (2018). Foreign currency risk hedging and firm value in China. Journal of Multinational Financial Management, 47–48, 129–143. https://doi.org/10.1016/j.mulfin.2018.11.002
Menon, K., & Deahl Williams, J. (1994). The use of audit committees for monitoring. Journal of Accounting and Public Policy, 13(2), 121–139. https://doi.org/10.1016/0278-4254(94)90016-7
Muafiki, R., & Ismiyanti, F. (2023). Efek moderasi komite pemantau manajemen risiko pada pengungkapan risiko terhadap kinerja bank. Fair Value : Jurnal Ilmiah Akuntansi Dan Keuangan, 5.
Otoritas Jasa Keuangan. (2015). Peraturan Otoritas Jasa Keuangan Nomor 55/POJK.04/2015 Tentang Pembentukan dan Pedoman Pelaksanaan Kerja Komite Audit.
Servaes, H., Tamayo, A., & Tufano, P. (2009). The Theory and Practice of Corporate Risk Management*. Journal of Applied Corporate Finance, 21(4), 60–78. https://doi.org/10.1111/j.1745-6622.2009.00250.x
Setiany, E. (2018). Audit Committee Characteristics and Voluntary Financial Disclosure. Review of Integrative Business and Economics Research, 6, 239. https://www.researchgate.net/publication/325558334
Sikarwar, E. (2022). Board attributes, hedging activities and exchange rate risk: Multi-country firm-level evidence. Economic Modelling, 110. https://doi.org/10.1016/j.econmod.2022.105800
Smith, C. W. (1998). Corporate Risk Management: Theory and Practice Seasoned Equity Offerings View project. In Article in The Journal of Derivatives. https://www.researchgate.net/publication/228262062
Tai, V. W., Lai, Y.-H., & Yang, T.-H. (2020). The role of the board and the audit committee in corporate risk management. The North American Journal of Economics and Finance, 54, 100879. https://doi.org/10.1016/j.najef.2018.11.008
Ullah, S., Irfan, M., Kim, J. R., & Ullah, F. (2021). Capital expenditures, corporate hedging and firm value. The Quarterly Review of Economics and Finance. https://doi.org/10.1016/j.qref.2021.06.008
Vafeas, N. (2005). Audit Committees, Boards, and the Quality of Reported Earnings*. Contemporary Accounting Research, 22(4), 1093–1122. https://doi.org/10.1506/1QYN-2RFQ-FKYX-XP84
Published
2023-10-30
How to Cite
ZAFIRA, Ananda Puteri; HERMAWAN, Ancella A..
The Role of Audit Committee and Risk Monitoring Committee on Firm’s Hedging Practice.
E-Jurnal Akuntansi, [S.l.], v. 33, n. 10, p. 2675-2685, oct. 2023.
ISSN 2302-8556.
Available at: <https://ojs.unud.ac.id/index.php/akuntansi/article/view/102561>. Date accessed: 21 nov. 2024.
doi: https://doi.org/10.24843/EJA.2023.v33.i10.p10.
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