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An Examination of European Firms’ Derivatives Usage: The Importance of Model Selection

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  • Anthony Carroll
  • Fergal O'Brien
  • James Ryan

Abstract

This paper investigates the determinants of foreign currency (FX) and interest rate (IR) derivatives usage for European non†financial firms. We employ a Tobit model and a two†part model which allows the determinants of the usage decision to differ from the extent of usage decision. We find FX derivatives usage is motivated by economies of scale and FX exposure, while IR derivatives usage is motivated by the magnitude and nature of firms’ debt. We also find that for IR derivatives the determinants of the usage decision differ from the determinants of the extent of usage decision.

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  • Anthony Carroll & Fergal O'Brien & James Ryan, 2017. "An Examination of European Firms’ Derivatives Usage: The Importance of Model Selection," European Financial Management, European Financial Management Association, vol. 23(4), pages 648-690, September.
    • Handle: RePEc:bla:eufman:v:23:y:2017:i:4:p:648-690
    DOI: 10.1111/eufm.12115
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