Impact of Corporate Governance on American Corporates' Financial Performance: The Mediating Role of Derivatives

Abstract

This study aims to present and test a model that derivatives (commodity, currency, and interest rate) play a mediating role between corporate governance and financial performance. We tested this model through a sample of 85 non-financial American corporates listed in New York Stock Exchange, U.S. 100 Index for six years from 2009-2014 by applying Partial Least Square, Structural Equation Modeling. We confirm that derivatives usage plays a mediating role between corporate governance and financial performance. We found and recommend that the utilization of derivatives as a risk management tool is essential for corporates to improve financial performance. Finally, the findings are useful for corporates from developed (European), emerging (China), and developing (Pakistan, Bangladesh) countries to utilize derivatives to hedge risk and improve financial performance.

Keywords

• Risk Management
• Hedging
• Derivatives
• Corporate Governance