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Hedging, Hedge Accounting And Speculation: Evidence From Canadian Oil And Gas Companies

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  • Rikard Smistad
  • Igor Pustylnick

Abstract

Using archival data, this paper presents the results of analyzing a sample of twelve primarily oil and gas, western Canadian energy firms and their use of financial derivatives to manage commodity price risk. The firms range in size from small to large based on total assets. All twelve companies document and disclose their risk strategies and derivative products they use to manage risk. Regardless of size, all companies make use of common commodity price risk strategies using derivatives. The large energy companies are more likely to utilize hedge accounting than are their small and mid-sized peers. All companies, except for the largest ones, claim they do not use derivatives to speculate. However, by clarifying the definition of speculation, all of the energy firms attempt derivative speculation to a different extent.

Suggested Citation

  • Rikard Smistad & Igor Pustylnick, 2012. "Hedging, Hedge Accounting And Speculation: Evidence From Canadian Oil And Gas Companies," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 6(3), pages 49-62.
    • Handle: RePEc:ibf:gjbres:v:6:y:2012:i:3:p:49-62
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    References listed on IDEAS

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    1. Henri Servaes & Ane Tamayo & Peter Tufano, 2009. "The Theory and Practice of Corporate Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(4), pages 60-78, September.
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    Cited by:

    1. Franziska Wolf & Terry Boulter & Sukanto Bhattacharya, 2017. "Derivative Practices in Australian and Canadian Industries," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-39, December.
    2. Akira Nishimura, 2016. "Foreign Exchange Risk and Profit Improvement in the Comprehensive Profit Opportunity and Lost Opportunity Control Model," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(4), pages 1-1, March.
    3. Gormus, N. Alper & Soytas, Ugur & Diltz, J. David, 2014. "Volatility transmission between energy-related asset classes," Global Finance Journal, Elsevier, vol. 25(3), pages 246-259.

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    More about this item

    Keywords

    Hedging; hedge accounting; speculation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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