The Impact of Firm Characteristics and Manager Holdings on Hedging Decisions by Australian Mining Companies

Abstract

It is well known that the mining industry faces many risks such as commodity, foreign exchange and operational risks. Financial derivatives are commonly used to manage these risks. This paper examines how a company’s financial features and different forms of management compensation can affect the use of derivatives based on the 100 largest listed mining companies on the ASX in 2010. Our empirical results reveal that a firm’s financial features affect whether it chooses to use derivatives while the CEO compensation in terms of option and stock holdings does not have any significant impact on this decision.