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The effects of derivatives on firm risk and value
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Bartram, Söhnke M., Brown, Gregory W. and Conrad, Jennifer. (2011) The effects of derivatives on firm risk and value. Journal of Financial and Quantitative Analysis, Vol.46 (No.4). pp. 967-999. ISSN 0022-1090
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Official URL: http://dx.doi.org/10.1017/S0022109011000275
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.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
| Journal or Publication Title: | Journal of Financial and Quantitative Analysis |
| Publisher: | Cambridge University Press |
| ISSN: | 0022-1090 |
| Date: | 2011 |
| Volume: | Vol.46 |
| Number: | No.4 |
| Number of Pages: | 33 |
| Page Range: | pp. 967-999 |
| Identification Number: | 10.1017/S0022109011000275 |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/44744 |
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