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Financial Derivatives Usage and Firm Value in Turbulent Periods: Comparative Evidence from India during the COVID-19 Crisis

Author

Listed:
  • S. M. R. K. Samarakoon

    (Indian Institute of Technology Kharagpur
    Wayamba University of Sri Lanka)

  • Rudra P. Pradhan

    (Indian Institute of Technology Kharagpur)

  • I. K. D. Gunathunga

    (Wayamba University of Sri Lanka)

  • Sasikanta Tripathy

    (University of Bahrain)

Abstract

This study delves into the ramifications of financial derivatives usage on the firm value among Indian non-financial firms, covering both the COVID-19 crisis period (2020–2021) and the preceding stable phase (2015–2019). This comparative analysis aims to discern how the strategic use of derivatives influences firm valuation across varying economic conditions. Analyzing 712 firm-year observations during the pandemic and extending to 1735 observations in the pre-COVID era, our findings reveal that while foreign exchange and interest rate derivatives consistently enhance firm value, the use of commodity derivatives exhibits a complex relationship with firm value, becoming notably negative during the pandemic. This suggests that derivatives’ effectiveness in risk management and value preservation is contingent upon both the type of derivative and the economic context. Our research underscores the critical role of derivatives in navigating financial uncertainties, offering nuanced insights that enrich our understanding of firm-level risk management strategies in both stable and turbulent times.

Suggested Citation

  • S. M. R. K. Samarakoon & Rudra P. Pradhan & I. K. D. Gunathunga & Sasikanta Tripathy, 2025. "Financial Derivatives Usage and Firm Value in Turbulent Periods: Comparative Evidence from India during the COVID-19 Crisis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(2), pages 381-445, June.
    • Handle: RePEc:kap:apfinm:v:32:y:2025:i:2:d:10.1007_s10690-024-09457-8
    DOI: 10.1007/s10690-024-09457-8
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    Keywords

    Derivatives market; Foreign currency derivatives; Commodity derivatives; Interest rate derivatives; Firm value; India; Turbulent Periods;
    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

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