On the determinants of derivatives disclosure – an emerging markets perspective

PurposeTo ascertain how JSE-listed companies use derivatives to hedge.AimDetermine whether JSE-listed companies apply established rationales for corporate hedging practices.Design/Methodology/ApproachThis empirical study uses data from the Johannesburg Stock Exchange (JSE), South Africa, as a proxy for emerging markets.Main findingsBinomial logistic regression, applied to the 200 largest non-financial firms (by market capitalization) on the JSE from 2005 to 2017, indicates that larger firms, higher leveraged firms, ones with better growth prospects, and less information asymmetry between directors and management are more likely to use derivatives to hedge.Practical implicationsThe findings suggest that some traditional determinants for corporate hedging practices apply in an emerging market context, but local conditions still remain an important consideration.Novelty/ContributionBy confirming the applicability of traditional hedging theories in an emerging market context, the study extends the theoretical understanding of corporate risk management. It supports the notion that established hedging rationales, such as reducing financial distress costs and addressing information asymmetry, are relevant across different economic contexts.