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The Use of Derivatives as a Risk Management Instrument: Evidence from Indonesian Non-Financial Firms

Author

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  • I Wayan Nuka Lantara

    (Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia)

Abstract

This paper provides empirical evidence of firm-specific factors determining the decision to use derivatives and the level of usage for the case of Indonesia. The findings show that the participation rate in the use of derivatives is 15.8%, much lower compared to those found in developed countries. Using Probit and Tobit regression models, the results indicate that the use of derivatives is positively associated with firm size, market-to-book value, bank-firm relationship, and the involvement of the firm in foreign business activity, but negatively linked to liquidity.

Suggested Citation

  • I Wayan Nuka Lantara, 2012. "The Use of Derivatives as a Risk Management Instrument: Evidence from Indonesian Non-Financial Firms," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 45-62, June.
  • Handle: RePEc:ijb:journl:v:11:y:2012:i:1:p:45-62
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    References listed on IDEAS

    as
    1. Guay, Wayne & Kothari, S. P, 2003. "How much do firms hedge with derivatives?," Journal of Financial Economics, Elsevier, vol. 70(3), pages 423-461, December.
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    8. Tadanori Yosano & I Wayan Nuka Lantara, 2010. "Bank-firm relationship and the use of derivatives in japan," Discussion Papers 2010-58, Kobe University, Graduate School of Business Administration.
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    More about this item

    Keywords

    derivatives; risk management; hedging;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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