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Title: Misuse of derivatives : considerations for internal control
Authors: Grima, Simon
Bezzina, Frank
Romanova, Inna
Keywords: Derivative securities -- Case studies
Corporate culture
Corporations -- Finance -- Management
Issue Date: 2016
Publisher: Emerald Group Publishing Limited
Citation: Grima, S., Bezzina, F., & Romanova, I. (2016), Misuse of derivatives : considerations for internal control. In S. Grima, F. Bezzina, I. Romānova, Ramona Rupeika- Apoga (ed.), Contemporary Issues in Finance: Current Challenges from Across Europe (Contemporary Studies in Economic and Financial Analysis, Volume 98), pp.49 – 62. Emerald Group Publishing Limited.
Abstract: Derivatives are nowadays widely used globally both for speculative and hedging purposes. However, as experience shows, inadequate use of derivatives may cause severe problems and even bankruptcy of firms. Thus, it is essential to help organizations design a robust proactive governance and internal control structure, which will help to prevent new financial debacles and scandals when using derivatives. Taking into account the frequent use and the growing fraud caused by derivatives, the aim of the paper is to identify considerations for internal control important to ensure better governance of firms using derivatives. The main findings are based on an analysis of interviews that were conducted with experts directly or indirectly involved with derivatives from different European countries. The interviews were semistructured following the approach proposed by Patton (1990). An analysis of the data collected from the interviews was carried out using a thematic approach. The paper identifies and analyzes the main “sources” of derivatives misuse, including poor design and mis-categorization of instruments, convenience to blame derivatives, unsophisticated players, insufficient regulatory environment, poorly designed internal controls, inadequate communication, poor firm culture, etc. It also provides an extensive analysis of the main recommendation for internal control concerning awareness of derivatives design, the human aspects, regulations, communication, knowledge, and training. Sound internal controls could avoid new debacles without adding other restrictions to the market. Moreover, it provides recommendations for internal control important to ensure better governance of firms using derivatives.
ISSN: 10.1108/S1569-375920160000098004
Appears in Collections:Scholarly Works - FacEMAIns
Scholarly Works - FacEMAMAn

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