Skip to main content
×
Home
    • Aa
    • Aa
  • Get access
    Check if you have access via personal or institutional login
  • Cited by 29
  • Cited by
    This article has been cited by the following publications. This list is generated based on data provided by CrossRef.

    Akpınar, Onur and Fettahoğlu, Abdurrahman 2016. Does the use of derivatives affect firm value? Evidence from Turkey. Journal of Transnational Management, Vol. 21, Issue. 2, p. 53.


    Ayturk, Yusuf Gurbuz, Ali Osman and Yanik, Serhat 2016. Corporate derivatives use and firm value: Evidence from Turkey. Borsa Istanbul Review, Vol. 16, Issue. 2, p. 108.


    Deng, Saiying Elyasiani, Elyas and Mao, Connie X. 2016. Derivatives-hedging, risk allocation and the cost of debt: Evidence from bank holding companies. The Quarterly Review of Economics and Finance,


    Kieschnick, Robert and Rotenberg, Wendy 2016. Working Capital Management, the Credit Crisis, and Hedging Strategies: Canadian Evidence. Journal of International Financial Management & Accounting, Vol. 27, Issue. 2, p. 208.


    Krause, Timothy A and Tse, Yiuman 2016. Risk management and firm value: recent theory and evidence. International Journal of Accounting & Information Management, Vol. 24, Issue. 1, p. 56.


    Madan, Dilip B. Pistorius, Martijn and Schoutens, Wim 2016. Dynamic conic hedging for competitiveness. Mathematics and Financial Economics, Vol. 10, Issue. 4, p. 405.


    Trapp, Rouven and Weiß, Gregor N.F. 2016. Derivatives usage, securitization, and the crash sensitivity of bank stocks. Journal of Banking & Finance, Vol. 71, p. 183.


    Chakraborty, Suparna Tang, Yi and Wu, Liuren 2015. Imports, Exports, Dollar Exposures, and Stock Returns. Open Economies Review, Vol. 26, Issue. 5, p. 1059.


    Vivel Búa, Milagros Otero González, Luis Fernández López, Sara and Durán Santomil, Pablo 2015. Is value creation consistent with currency hedging?. The European Journal of Finance, Vol. 21, Issue. 10-11, p. 912.


    Aabo, Tom and Ploeen, Rasmus 2014. The German humpback: Internationalization and foreign exchange hedging. Journal of Multinational Financial Management, Vol. 27, p. 114.


    Chen, Jun and King, Tao-Hsien Dolly 2014. Corporate hedging and the cost of debt. Journal of Corporate Finance, Vol. 29, p. 221.


    Disatnik, D. Duchin, R. and Schmidt, B. 2014. Cash Flow Hedging and Liquidity Choices. Review of Finance, Vol. 18, Issue. 2, p. 715.


    Gagnon, Louis and Witmer, Jonathan 2014. Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross-Listed Stocks. Financial Management, Vol. 43, Issue. 3, p. 631.


    Imhof, Michael J. and Seavey, Scott E. 2014. Corporate risk-taking, firm value and high levels of managerial earnings forecasts. Advances in Accounting, Vol. 30, Issue. 2, p. 328.


    L. Hoelscher, Jamie and E. Seavey, Scott 2014. Auditor industry specialization and corporate risk-taking. Managerial Auditing Journal, Vol. 29, Issue. 7, p. 596.


    Nguyen, Hoa Liu, Ming-Hua and Gallagher, David 2014. Effective derivative hedging and initial public offering long-run performance. Accounting & Finance, Vol. 54, Issue. 4, p. 1263.


    Panaretou, Argyro 2014. Corporate risk management and firm value: evidence from the UK market. The European Journal of Finance, Vol. 20, Issue. 12, p. 1161.


    Phan, Dinh Nguyen, Hoa and Faff, Robert 2014. Uncovering the asymmetric linkage between financial derivatives and firm value — The case of oil and gas exploration and production companies. Energy Economics, Vol. 45, p. 340.


    Treanor, Stephen D. Rogers, Daniel A. Carter, David A. and Simkins, Betty J. 2014. Exposure, hedging, and value: New evidence from the U.S. airline industry. International Review of Financial Analysis, Vol. 34, p. 200.


    Weiß, Gregor N.F. and Mühlnickel, Janina 2014. Why do some insurers become systemically relevant?. Journal of Financial Stability, Vol. 13, p. 95.


    ×
  • Journal of Financial and Quantitative Analysis, Volume 46, Issue 4
  • August 2011, pp. 967-999

The Effects of Derivatives on Firm Risk and Value

  • Söhnke M. Bartram (a1), Gregory W. Brown (a2) and Jennifer Conrad (a3)
  • DOI: http://dx.doi.org/10.1017/S0022109011000275
  • Published online: 17 May 2011
Abstract
Abstract

Using a large sample of nonfinancial firms from 47 countries, we examine the effect of derivative use on firm risk and value. We control for endogeneity by matching users and nonusers on the basis of their propensity to use derivatives. We also use a new technique to estimate the effect of omitted variable bias on our inferences. We find strong evidence that the use of financial derivatives reduces both total risk and systematic risk. The effect of derivative use on firm value is positive but more sensitive to endogeneity and omitted variable concerns. However, using derivatives is associated with significantly higher value, abnormal returns, and larger profits during the economic downturn in 2001–2002, suggesting that firms are hedging downside risk.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

P. Alkeback , and N. Hagelin . “Derivative Usage by Nonfinancial Firms in Sweden with an International Comparison.” Journal of International Financial Management and Accounting, 10 (1999), 105120.

Y. Allayannis , and E. Ofek . “Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives.” Journal of International Money and Finance, 20 (2001), 273296.

Y. Allayannis , and J. P. Weston . “The Use of Foreign Currency Derivatives and Firm Market Value.” Review of Financial Studies, 14 (2001), 243276.

K. Aretz , and S. M. Bartram . “Corporate Hedging and Shareholder Value.” Journal of Financial Research, 33 (2010), 317371.

S. M Bartram . “Corporate Risk Management as a Lever for Shareholder Value Creation.” Financial Markets, Institutions and Instruments, 9 (2000), 279324.

S. M. Bartram ; G. W. Brown ; and F. R. Fehle . “International Evidence on Financial Derivatives Usage.” Financial Management, 38 (2009), 185206.

H. Berkman ; M. E. Bradbury ; and S. Magan . “An International Comparison of Derivatives Use.” Financial Management, 26 (1997), 6973.

G. M. Bodnar ; A. de Jong ; and V. Macrae . “The Impact of Institutional Differences on Derivatives Usage: A Comparative Study of U.S. and Dutch Firms.” European Financial Management, 9 (2003), 271297.

G. M. Bodnar , and G. Gebhardt . “Derivatives Usage in Risk Management by U.S. and German Non-Financial Firms: A Comparative Survey.” Journal of International Financial Management and Accounting, 10 (1999), 153187.

G. M. Bodnar ; G. S. Hayt ; and R. C. Marston . “1995 Wharton Survey of Derivatives Usage by U.S. Non-Financial Firms.” Financial Management, 25 (1996), 113133.

G. M. Bodnar ; G. S. Hayt ; and R. C. Marston . “1998 Wharton Survey of Financial Risk Management by U.S. Non-Financial Firms.” Financial Management, 27 (1998), 7091.

G. M. Bodnar ; G. S. Hayt ; R. C. Marston ; and C. W. Smithson . “Wharton Survey of Derivatives Usage by U.S. Non-Financial Firms.” Financial Management, 24 (1995), 104114.

G. W. Brown ; P. R. Crabb ; and D. Haushalter . “Are Firms Successful at Selective Hedging?Journal of Business, 79 (2006), 29252949.

M. J. K. DeCeuster ; E. Durinck ; E. Laveren ; and J. Lodewyckx . “A Survey into the Use of Derivatives by Large Non-Financial Firms Operating in Belgium.” European Financial Management, 6 (2000), 301318.

P. M. DeMarzo , and D. Duffie . “Corporate Incentives for Hedging and Hedge Accounting.” Review of Financial Studies, 8 (1995), 743771.

T. A. DiPrete , and M. Gangl . “Assessing Bias in the Estimation of Causal Effects: Rosenbaum Bounds on Matching Estimators and Instrumental Variables Estimation with Imperfect Instruments.” Sociological Methodology, 34 (2004), 271310.

K. A. Froot ; D. S. Scharfstein ; and J. C. Stein . “Risk Management: Coordinating Corporate Investment and Financing Policies.” Journal of Finance, 48 (1993), 16291658.

C. Géczy ; B. A. Minton ; and C. Schrand . “Why Firms Use Currency Derivatives.” Journal of Finance, 52 (1997), 13231354.

J. R. Graham , and D. A. Rogers . “Do Firms Hedge in Response to Tax Incentives?Journal of Finance, 57 (2002), 815839.

J. R. Graham , and C. W. Smith Jr.Tax Incentives to Hedge.” Journal of Finance, 54 (1999), 22412262.

K. Grant , and A. P. Marshall . “Large UK Companies and Derivatives.” European Financial Management, 3 (1997), 191208.

W. R Guay . “The Impact of Derivatives on Firm Risk: An Empirical Examination of New Derivative Users.” Journal of Accounting and Economics, 26 (1999), 319351.

W. Guay , and S. P. Kothari . “How Much Do Firms Hedge with Derivatives?Journal of Financial Economics, 70 (2003), 423461.

G. D Haushalter . “Financing Policy, Basis Risk, and Corporate Hedging: Evidence from Oil and Gas Producers.” Journal of Finance, 55 (2000), 107152.

J. J Heckman . “Sample Selection as a Specification Error.” Econometrica, 47 (1979), 153161.

L. Hentschel , and S. P. Kothari . “Are Corporations Reducing or Taking Risks with Derivatives?Journal of Financial and Quantitative Analysis, 36 (2001), 93118.

Y. Jin , and P. Jorion . “Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers.” Journal of Finance, 61 (2006), 893919.

J. L. Koski , and J. Pontiff . “How Are Derivatives Used? Evidence from the Mutual Fund Industry.” Journal of Finance, 54 (1999), 791816.

H. E Leland . “Agency Costs, Risk Management, and Capital Structure.” Journal of Finance, 53 (1998), 12131243.

C. Loderer , and K. Pichler . “Firms, Do You Know Your Currency Risk Exposure? Survey Results.” Journal of Empirical Finance, 7 (2000), 317344.

S. L Mian . “Evidence on Corporate Hedging Policy.” Journal of Financial and Quantitative Analysis, 31 (1996), 419439.

D. R. Nance ; C. W. Smith Jr.; and C. W. Smithson . “On the Determinants of Corporate Hedging.” Journal of Finance, 48 (1993), 267284.

W. K. Newey , and K. D. West . “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.

P. R Rosenbaum . Observational Studies, 2nd ed.New York, NY: Springer-Verlag (2002).

P. R. Rosenbaum , and D. B. Rubin . “The Central Role of the Propensity Score in Observational Studies for Causal Effects.” Biometrika, 70 (1983), 4155.

B. Rountree ; J. P. Weston ; and G. Allayannis . “Do Investors Value Smooth Performance?Journal of Financial Economics, 90 (2008), 237251.

C. W. Smith , and R. M. Stulz . “The Determinants of Firms’ Hedging Policies.” Journal of Financial and Quantitative Analysis, 20 (1985), 391405.

R. M Stulz . “Optimal Hedging Policies.” Journal of Financial and Quantitative Analysis, 19 (1984), 127140.

P. Tufano Who Manages Risk? An Empirical Examination of the Risk Management Practices in the Gold Mining Industry.” Journal of Finance, 51 (1996), 10971137.

Z. Zhao Using Matching to Estimate Treatment Effects: Data Requirements, Matching Metrics, and Monte Carlo Evidence.” Review of Economics and Statistics, 86 (2004), 91107.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×