Rights statement: http://journals.cambridge.org/action/displayJournal?jid=JFQ The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 46 (4), pp 967-999 2011, © 2011 Cambridge University Press.
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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - The effects of derivatives on firm risk and value
AU - Bartram, Sohnke
AU - Brown, Gregory W.
AU - Conrad, Jennifer S.
N1 - http://journals.cambridge.org/action/displayJournal?jid=JFQ The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 46 (4), pp 967-999 2011, © 2011 Cambridge University Press.
PY - 2011/9
Y1 - 2011/9
N2 - 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.
AB - 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.
U2 - 10.1017/S0022109011000275
DO - 10.1017/S0022109011000275
M3 - Journal article
VL - 46
SP - 967
EP - 999
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 4
ER -