Public discussion about corporate use of derivatives
focuses on whether firms use derivatives to reduce
or increase firm risk. In contrast, empirical
academic studies of corporate dervatives use take it
for granted that firms hedge with derivatives. Using
data from financial statements of 425 large U.S.
corporations, we investigate whether firms
systematically reduce or increase their riskiness
with derivatives. We find that many firms manage
their exposures with large derivatives positions.
Nonetheless, compared to firms that do not use
financial derivatives, firms that use derivatives
display few, if any, measurable differences in risk
that are associated with the use of derivatives.