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Do derivatives benefit shareholders? Evidence from India

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  • Chaudhry, Neeru
  • Gupta, Aastha

Abstract

We show that for a sample of 1,882 publicly listed Indian firms and sample period from 2016 to 2021, derivative-usage significantly reduces the idiosyncratic stock return volatility. The negative effect of derivative-usage on idiosyncratic volatility is more pronounced for firms with poor information environment, and financially-constrained and distressed firms. The quality of corporate governance does not influence the relationship between derivative-usage and firm risk. The valuation of derivative-user firms is significantly higher than that of non-derivative-user firms. Overall, using derivatives benefits the firms using them, both in terms of reducing risk and creating value for the shareholders.

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  • Chaudhry, Neeru & Gupta, Aastha, 2023. "Do derivatives benefit shareholders? Evidence from India," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003847
    DOI: 10.1016/j.frl.2023.104012
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    More about this item

    Keywords

    Derivatives; Idiosyncratic stock return volatility; Idiosyncratic risk; Idiosyncratic volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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