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Derivatives usage in risk management by U.S. and German non-financial firms: A comparative survey

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  • Bodnar, Gordon M.
  • Gebhardt, Günther

Abstract

This paper is a comparative study of the responses to the 1995 Wharton School survey of derivative usage among US non-financial firms and a 1997 companion survey on German non-financial firms. It is not a mere comparison of the results of both studies but a comparative study, drawing a comparable subsample of firms from the US study to match the sample of German firms on both size and industry composition. We find that German firms are more likely to use derivatives than US firms, with 78% of German firms using derivatives compared to 57% of US firms. Aside from this higher overall usage, the general pattern of usage across industry and size groupings is comparable across the two countries. In both countries, foreign currency derivative usage is most common, followed closely by interest rate derivatives, with commodity derivatives a distant third. Usage rates across all three classes of derivatives are higher for German firms than US firms. In contrast to the similarities, firms in the two countries differ notably on issues such as the primary goal of hedging, their choice of instruments, and the influence of their market view when taking derivative positions. These differences appear to be driven by the greater importance of financial accounting statements in Germany than the US and stricter German corporate policies of control over derivative activities within the firm. German firms also indicate significantly less concern about derivative related issues than US firms, which appears to arise from a more basic and simple strategy for using derivatives. Finally, among the derivative non-users, German firms tend to cite reasons suggesting derivatives were not needed whereas US firms tend to cite reasons suggesting a possible role for derivatives, but a hesitation to use them for some reason. --

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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 1998/17.

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Date of creation: 1998
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Handle: RePEc:zbw:cfswop:199817

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Keywords: Hedging; exposure; derivatives; risk management;

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References

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  1. Edwards,Jeremy & Fischer,Klaus, 1996. "Banks, Finance and Investment in Germany," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521566087.
  2. Ian H. Giddy & Gunter Dufey, 1995. "Uses And Abuses Of Currency Options," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 8(3), pages 49-57.
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Citations

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Cited by:
  1. Hjalmar Böhm & Michael Funke, 2001. "Does the Nominal Exchange Rate Regime Matter for Investment?," CESifo Working Paper Series 578, CESifo Group Munich.
  2. Bartram, Söhnke M., 2004. "The Use of Options in Corporate Risk Management," MPRA Paper 6663, University Library of Munich, Germany.
  3. Chaudhry, Dr. Naveed Iqbal & Mehmood, Mian Saqib & Mehmood, Asif, 2014. "Determinants of corporate hedging policies and derivatives usage in risk management practices of non-financial firms," MPRA Paper 57562, University Library of Munich, Germany, revised 26 Jul 2014.
  4. Ales S. Berk & Jozko Peterlin & Mitja Cok, 2009. "Corporate Risk Management in Slovenian Firms," Managing Global Transitions, University of Primorska, Faculty of Management Koper, University of Primorska, Faculty of Management Koper, vol. 7(3), pages 281-306.
  5. Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers, Reserve Bank of Australia rdp2006-09, Reserve Bank of Australia.
  6. Michael G. Papaioannou, 2006. "Exchange Rate Risk Measurement and Management," IMF Working Papers 06/255, International Monetary Fund.
  7. 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, Economia civile, vol. 55(217), pages 55-75.
  8. Flavio Bazzana & Monica Potrich, 2002. "Il risk management nelle medie imprese del Nord Est: risultati di un'indagine," Alea Tech Reports, Department of Computer and Management Sciences, University of Trento, Italy 016, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  9. Gatopoulos, Georgios & Loubergé, Henri, 2013. "Combined use of foreign debt and currency derivatives under the threat of currency crises: The case of Latin American firms," Journal of International Money and Finance, Elsevier, Elsevier, vol. 35(C), pages 54-75.
  10. Kapitsinas, Spyridon, 2008. "Derivatives Usage in Risk Management by Non-Financial Firms: Evidence from Greece," MPRA Paper 10945, University Library of Munich, Germany.

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