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Financial derivatives usage dynamics in Asia Pacific region

Author

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  • Samarakoon, S.M.R.K.
  • Pradhan, Rudra P.
  • Chathuranga, G.G.

Abstract

This study investigates the determinants and outcomes of financial derivatives usage among non-financial firms across nine Asia-Pacific countries—Australia, India, Hong Kong, Japan, Malaysia, Singapore, South Korea, Thailand, and Taiwan—using 15,316 firm-year observations over the 2022–2023 period. Firm-specific factors, governance mechanisms, and financial characteristics are examined to assess their influence on derivatives usage and its impact on firm value, performance, and cost of capital. We find that derivatives usage positively impacts firm value, particularly through foreign currency derivatives, which mitigate exchange rate risks in trade-dependent economies. Derivatives usage also significantly reduces the cost of equity (Ke) and the weighted average cost of capital (WACC) by mitigating financial risk and enhancing perceived financial stability. The impact is stronger for firms using foreign currency derivatives and those with effective governance mechanisms. The study highlights the context-specific nature of derivatives usage, emphasizing tailored strategies based on firm size, governance structures, and financial constraints to optimize outcomes.

Suggested Citation

  • Samarakoon, S.M.R.K. & Pradhan, Rudra P. & Chathuranga, G.G., 2025. "Financial derivatives usage dynamics in Asia Pacific region," Pacific-Basin Finance Journal, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:pacfin:v:94:y:2025:i:c:s0927538x25002781
    DOI: 10.1016/j.pacfin.2025.102941
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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