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Are Corporations Reducing or Taking Risks with Derivatives?
Open accessAbstract
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.
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Citations
Cites
The pricing of options and corporate liabilities
Black, F., & Scholes, M. (1973) · Journal of Political Economy · doi:10.1086/260062 · Cited by 29,074
Determinants of corporate borrowing
Myers, S. C. (1977) · Journal of Financial Economics · doi:10.1016/0304-405x(77)90015-0 · Cited by 13,169
Cited by
Determinants of the informativeness of analyst research
Frankel, R., Kothari, S. P., & Weber, J. (2006) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2005.10.004 · Cited by 631
Self-citationHow much do firms hedge with derivatives?
Guay, W., & Kothari, S. P. (2003) · Journal of Financial Economics · doi:10.1016/s0304-405x(03)00179-x · Cited by 607
Self-citationThe Effects of Derivatives on Firm Risk and Value
Bartram, S. M., Brown, G. W., & Conrad, J. (2011) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109011000275 · Cited by 429
Does the Use of Financial Derivatives Affect Earnings Management Decisions?
Barton, J. (2001) · The Accounting Review · doi:10.2308/accr.2001.76.1.1 · Cited by 412
Financial distress and corporate risk management: Theory and evidence
Purnanandam, A. (2008) · Journal of Financial Economics · doi:10.1016/j.jfineco.2007.04.003 · Cited by 363
Metadata
- Authors
- Hentschel, L., & Kothari, S. P.
- Venue
- The Journal of Financial and Quantitative Analysis
- Publisher
- JSTOR
- Published
- 2001-03
- Volume
- 36
- Issue
- 1
- Pages
- 93
- ISSN
- 0022-1090 (ISSN-L)
- OpenAlex
- W2161769395
- Cited by
- 368
- References
- 2
- FWCI
- 55.17
- Type
- journal article
- Language
- en
- Open access
- green
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
