The Use of Derivatives and Firm Market Value: Finnish Evidence from 2010–2016
Pollari, Jesse (2018)
Kuvaus
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Tiivistelmä
After the recent financial crisis, the derivatives market has been hit with higher level of regulation standards to prevent and minimize the risks related to massive open derivative positions. Nevertheless, the corporate level risk management practices are widely using derivatives to hedge different market risks. Due to the counterparty default risk related to derivative products the financial markets have become more vulnerable to crises, which has also questioned the value of derivatives as risk management strategy.
This thesis contributes to the existing literature by testing the relation between hedging and firm market value in firms listed in Nasdaq OMX Helsinki. Tobin’s Q is used as a proxy for firm market value in univariate and multivariate tests which divide hedgers in three categories: foreign exchange hedgers, interest rate hedgers and commodity price hedgers. In addition, a firm value effect of the relative size of firm’s derivative position is tested using hedging coverage as a control variable.
The results through univariate and multivariate tests contrast with Allayannis and Weston (2001) findings as hedgers are identified with negative firm value effect. The effect is estimated to be -10,98 % for foreign currency hedgers and -5,27 % for interest rate hedgers, while general hedgers coefficient is negative but insignificant. Further research with larger international sample is required to confirm the findings and the effect of hedging coverage as the demographic of hedgers and non-hedgers in the Finnish sample is strongly driven by firm size.
This thesis contributes to the existing literature by testing the relation between hedging and firm market value in firms listed in Nasdaq OMX Helsinki. Tobin’s Q is used as a proxy for firm market value in univariate and multivariate tests which divide hedgers in three categories: foreign exchange hedgers, interest rate hedgers and commodity price hedgers. In addition, a firm value effect of the relative size of firm’s derivative position is tested using hedging coverage as a control variable.
The results through univariate and multivariate tests contrast with Allayannis and Weston (2001) findings as hedgers are identified with negative firm value effect. The effect is estimated to be -10,98 % for foreign currency hedgers and -5,27 % for interest rate hedgers, while general hedgers coefficient is negative but insignificant. Further research with larger international sample is required to confirm the findings and the effect of hedging coverage as the demographic of hedgers and non-hedgers in the Finnish sample is strongly driven by firm size.