The effects of derivative usage on non-financial firms’ risk management

Ting, He (2019) The effects of derivative usage on non-financial firms’ risk management. [Dissertation (University of Nottingham only)]

[img] PDF - Registered users only - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (493kB)


The company's rationale for using derivatives instruments will have an impact on the

suitability of financial reporting rules for these financial tools. Empirically, there is

little literature on how these tools affect corporate exposure. This paper is based upon

the assumption of firm using derivatives instruments to hedge risk, aiming to identify

the correlation between firm-specific risk and the derivatives usage and try to find

whether using derivatives can actually reduce firm risk. We firstly analyze the

corporate risks associated with the adoption of derivatives. Secondly, the correlation

between risk effect and the level of financial derivatives used by Chinese

non-financial firms is studied. In order to accomplish this research topic, 274

non-financial firms are chosen from Hong Kong Stock Exchange as the sample by

ranking the market capitalization of firms at the end of 2018. Our findings show

consistency with the research results that companies employ derivatives to hedge

firm-specific risk instead of increasing it. Firm risk, calculated from CAPM model,

falls after derivatives are used. Besides, our results show that the extent of derivatives

usage also has impact on firm risk. This result is consistent with previous literature.

High levels of derivatives users will reduce more corporate risk. Therefore, our

conclusion is that the more derivatives instruments employed by firms are, the more

effectively firm risk reduces.

Item Type: Dissertation (University of Nottingham only)
Depositing User: He, Ting
Date Deposited: 06 Dec 2022 08:57
Last Modified: 06 Dec 2022 08:57

Actions (Archive Staff Only)

Edit View Edit View