Derivatives use and financial instrument disclosure in the extractives industry
Article first published online: 2 NOV 2012
© 2012 The Authors. Accounting and Finance © 2012 AFAANZ
Accounting & Finance
Volume 53, Issue 1, pages 55–83, March 2013
How to Cite
Birt, J., Rankin, M. and Song, C. L. (2013), Derivatives use and financial instrument disclosure in the extractives industry. Accounting & Finance, 53: 55–83. doi: 10.1111/acfi.12001
- Issue published online: 15 MAR 2013
- Article first published online: 2 NOV 2012
- Received 30 April 2011; accepted 23 August 2011 by Robert Faff (Editor).
- Financial instruments;
- Extractive industry;
- IFRS 7
This article documents the use and disclosure of derivatives in the Australian extractives industry. We find that derivatives are used by 23 per cent of our sample, with mitigation of commodity risk and foreign exchange risk being the most common purposes for which derivatives are used. The most common types of derivatives used in the sector for hedging purposes are forward rate agreements and options. Results indicate that derivative use is positively associated with financial risk and firm size. We also examine the relation between firm characteristics and the extent of financial instrument disclosure, using a disclosure index based on the additional requirements in IFRS 7 Financial Instruments: Disclosures. Empirical results reveal that large firms with higher leverage, which use derivatives, and are audited by a Big 4 auditor provide more extensive disclosure of financial instruments.