A Study on the Impact of Derivatives on Firm Value

Rathnasamy, Kiruthiga (2008) A Study on the Impact of Derivatives on Firm Value. [Dissertation (University of Nottingham only)] (Unpublished)

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In today's globalized era all firms face an assortment of exchange rate risk in the due course of their normal business. In this context, the usage of financial derivatives as an integral part of the corporate risk management has afforded the managers of large corporation with a whole range of derivative instruments to mitigate the risk or even to

add value to the firm.

But with the recent spate of the major losses allied with improper use of derivatives leading to huge losses all over the world and bring most of the economies to the brink of recession however leads to an interesting question whether firms should implement

hedging strategies as a risk management tool. This research aims to solve this puzzle empirically by analyzing the impact of currency derivatives usage on firm's value. The author uses simple Q as an approximation of the market value of the non financial firms

listed in FTSE 350 of the London Stock Exchange from the year 2003-2007.

The results arrived at show that there is no positive relationship between the firm's value and the usage of currency derivatives. The author makes another important inference in the findings consistent with many other studies on relevant topic that 78% of the sample

uses derivatives in the longer horizon which leaves open a further investigation on the nonlinear relationship approach to address the same question. This would help to solve the puzzle by using consolidated approach. The results also shows that currency derivatives is the most widely used managed form of risk management to manage the

volatility in cash flows.

Item Type: Dissertation (University of Nottingham only)
Keywords: Impact of derivatives on Firm value
Depositing User: EP, Services
Date Deposited: 02 Feb 2009
Last Modified: 16 Feb 2018 23:48
URI: https://eprints.nottingham.ac.uk/id/eprint/22317

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