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Currency and Interest-Rate Derivatives Use in US Firms

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  • Shawn D. Howton
  • Steven B. Perfect
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    Abstract

    This study examines derivatives use in samples of 451 Fortune 500/S&P 500 (FSP) firms and 461 randomly selected firms. We find that over 61% of the FSP firms and 36% of the random firms use derivatives. In both samples, swaps are the most often used interest-rate contract, and forwards and futures the most often used currency contract. The determinants of derivatives use differ across samples and definitions of derivatives use, and are largely consistent with theory. One exception is that the random firms' derivatives use and the theoretical determinants are not strongly related.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 27 (1998)
    Issue (Month): 4 (Winter)
    Pages:

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    Handle: RePEc:fma:fmanag:howton98

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    Cited by:
    1. Elliott, William B. & Huffman, Stephen P. & Makar, Stephen D., 2003. "Foreign-denominated debt and foreign currency derivatives: complements or substitutes in hedging foreign currency risk?," Journal of Multinational Financial Management, Elsevier, vol. 13(2), pages 123-139, April.
    2. Boyle, Glenn W. & Guthrie, Graeme A., 2006. "Hedging the value of waiting," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1245-1267, April.
    3. Gianluca Bison & Loriana Pellizzon & Domenico Sartore, 2002. "La copertura dei rischi finanziari nelle imprese non finanziarie italiane attraverso gli strumenti derivati," Moneta e Credito, Economia civile, vol. 55(217), pages 55-75.
    4. Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
    5. Bartram, Söhnke M., 2004. "The Use of Options in Corporate Risk Management," MPRA Paper 6663, University Library of Munich, Germany.
    6. Hongming Huang & Yildiray Yildirim, 2008. "Leverage, options liabilities, and corporate bond pricing," Review of Derivatives Research, Springer, vol. 11(3), pages 245-276, October.
    7. Söhnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2009. "International Evidence on Financial Derivatives Usage," Financial Management, Financial Management Association International, vol. 38(1), pages 185-206, 03.
    8. Aretz, Kevin & Bartram, Söhnke M., 2009. "Corporate Hedging and Shareholder Value," MPRA Paper 14088, University Library of Munich, Germany.
    9. Lin, Chen-Miao & Phillips, Richard D. & Smith, Stephen D., 2008. "Hedging, financing, and investment decisions: Theory and empirical tests," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1566-1582, August.
    10. Fauver, Larry & Naranjo, Andy, 2010. "Derivative usage and firm value: The influence of agency costs and monitoring problems," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 719-735, December.
    11. Gay, Gerald D. & Lin, Chen-Miao & Smith, Stephen D., 2011. "Corporate derivatives use and the cost of equity," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1491-1506, June.
    12. Kim, Woochan & Sung, Taeyoon, 2005. "What makes firms manage FX risk?," Emerging Markets Review, Elsevier, vol. 6(3), pages 263-288, September.
    13. Supanvanij, Janikan & Strauss, Jack, 2006. "The effects of management compensation on firm hedging: Does SFAS 133 matter?," Journal of Multinational Financial Management, Elsevier, vol. 16(5), pages 475-493, December.
    14. Ugur Lel, 2006. "Currency hedging and corporate governance: a cross-country analysis," International Finance Discussion Papers 858, Board of Governors of the Federal Reserve System (U.S.).
    15. Chen-Miao Lin & Stephen D. Smith, 2005. "Hedging, financing, and investment decisions: a simultaneous equations framework," Working Paper 2005-05, Federal Reserve Bank of Atlanta.
    16. Supanvanij, Janikan & Strauss, Jack, 2010. "Corporate derivative use and the composition of CEO compensation," Global Finance Journal, Elsevier, vol. 21(2), pages 170-185.
    17. Constantin Mellios, 2003. "La gestion des risques financiers par les entreprises : explications théoriques versus études empiriques," Revue d'Économie Financière, Programme National Persée, vol. 72(3), pages 243-264.
    18. Kim, Young Sang & Nam, Jouahn & Thornton Jr., John H., 2008. "The effect of managerial bonus plans on corporate derivatives usage," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 229-243, July.
    19. Constantin Mellios, 2001. "La gestion des risques financiers par les entreprises : explications théoriques versus études théoriques," Working Papers 2001-9, Laboratoire Orléanais de Gestion - université d'Orléans.
    20. Monda, Barbara & Giorgino, Marco & Modolin, Ileana, 2013. "Rationales for Corporate Risk Management - A Critical Literature Review," MPRA Paper 45420, University Library of Munich, Germany.

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