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Does the type of derivative instrument used by companies impact firm value?

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  • Hoa Nguyen
  • Robert Faff

Abstract

We explore the relationship between the type of derivative instrument used and firm value, in a sample of Australian firms. Specifically, we examine the impact of the corporate use of swaps, futures, forwards and options, and the extent of such usage, on firm value. Our findings suggest that a 'discount' is most severely imposed on users of swaps.

Suggested Citation

  • Hoa Nguyen & Robert Faff, 2010. "Does the type of derivative instrument used by companies impact firm value?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(7), pages 681-683.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:7:p:681-683
    DOI: 10.1080/13504850802297822
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    References listed on IDEAS

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    1. William P. Rees, 1997. "The Impact of Dividends, Debt and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7‐8), pages 1111-1140, September.
    2. William P. Rees, 1997. "The Impact of Dividends, Debt and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 1111-1140.
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    5. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
    6. John R. M. Hand & Wayne R. Landsman, 2005. "The Pricing of Dividends in Equity Valuation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(3-4), pages 435-469.
    7. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
    8. Yanbo Jin & Philippe Jorion, 2006. "Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 61(2), pages 893-919, April.
    9. David A. Carter & Daniel A. Rogers & Betty J. Simkins, 2006. "Does Hedging Affect Firm Value? Evidence from the US Airline Industry," Financial Management, Financial Management Association International, vol. 35(1), pages 53-86, March.
    10. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    11. John R. M. Hand & Wayne R. Landsman, 2005. "The Pricing of Dividends in Equity Valuation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(3‐4), pages 435-469, April.
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    Cited by:

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    3. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    4. Ahmet Duran & Mahmut Sami Gungor, 2017. "Aviation Fuel Hedging and Firm Value Analysis using Dynamic Panel Data Methodology: Evidence from the U.S. Major Passenger Airlines," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 10(3), pages 67-72, September.
    5. Shao, Lili & Shao, Jun & Sun, Zheng & Xu, Huaxin, 2019. "Hedging, speculation, and risk management effect of commodity futures: Evidence from firm voluntary disclosures," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    6. Jyoti Prakash Das & Shailendra Kumar, 2023. "Impact of corporate hedging practices on firm's value: An empirical evidence from Indian MNCs," Risk Management, Palgrave Macmillan, vol. 25(2), pages 1-35, June.
    7. Bessler, Wolfgang & Conlon, Thomas & Huan, Xing, 2019. "Does corporate hedging enhance shareholder value? A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 222-232.
    8. 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.
    9. Kim, Huong Trang & Papanastassiou, Marina & Nguyen, Quang, 2017. "Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 39-59.
    10. Qi-an Chen & Xu Zhao & Guohong Zhang, 2023. "Large-scale sports events, sports gambling market and promotion risk management: Theoretical model and case analysis based on option hedging theory," PLOS ONE, Public Library of Science, vol. 18(6), pages 1-22, June.
    11. Zaminor Zamzamir & Razali Haron & Zatul Karamah Ahmad Baharul Ulum & Anwar Hasan Abdullah Othman, 2021. "Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharī‘ah compliant firms," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 28, pages 156-173.
    12. Hassan Tanha & Michael Dempsey & Mena Labeb, 2018. "Derivatives Usage by Australian Industrial Firms: Pre-, during and post-GFC," Review of Economics & Finance, Better Advances Press, Canada, vol. 11, pages 31-39, February.

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