KAPITSINAS, SPYRIDON (2008): The Impact of Derivatives Usage on Firm Value: Evidence from Greece.
Download (387kB) | Preview
This paper presents evidence on the use of derivative contracts in the risk management process of Greek non-financial firms and its potential impact on firm value. The sample of the research consists of 81 Greek non-financial firms with exposure to financial risks that are listed in the Athens Stock Exchange and have their annual report published according to the International Financial Reporting Standards (I.F.R.S) for the years 2004-2006. The subject of investigation is whether hedging with derivatives materially increases firm value as many related research has proven, or whether hedging does not affect firm value and can be attributed to managerial or other motives. Having used Tobin’s Q as a proxy for firm value a positive and significant effect of hedging on it is verified, 4.6% of firm value on average, not only concerning the general use of derivatives, but also the use of foreign exchange derivatives and interest rate derivatives in particular. Controlling for managerial motives does not change the sign of the hedging premium, nor its magnitude.
|Item Type:||MPRA Paper|
|Original Title:||The Impact of Derivatives Usage on Firm Value: Evidence from Greece|
|Keywords:||risk management, financial risk, derivatives, corporate finance, Greece|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill|
|Depositing User:||SPYRIDON KAPITSINAS|
|Date Deposited:||08. Oct 2008 10:50|
|Last Modified:||13. Feb 2013 02:25|
Adam, T., 2002. Do Firms Use Derivatives to Reduce their Dependence on External Capital Markets? European Finance Review, 6, 163-187.
Adam, T., Fernando, C.S., 2006. Hedging, Speculation and Shareholder Value. Journal of Financial Economics, 81, 283-309.
Alkeback, P., Hagelin, N., 1999. Derivative Usage by Nonfinancial Firms in Sweden with an International Comparison. Journal of International Financial Management and Accounting, 10 (2), 105-120.
Allayannis, G., Lel, U., and Miller, D., 2003. Corporate Governance and the Hedging Premium Around the World. Working Paper Darden School of Business, University of Virginia, Charlottesville, VA.
Allayannis, G., Mozumdar, A., 2000. Cash Flow, Investment and Hedging. Working Paper, University of Virginia.
Allayannis, G., Ofek, E.,1998. Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20, 273-296.
Allayannis, G., Rountree, B., and Weston, J., 2005. Earnings volatility, cash flow volatility, and firm value. Working Paper, Rice University.
Allayannis, G., Weston, J., 2001. The Use of Foreign Currency Derivatives and Firm Market Value. Review of Financial Studies, 14, 243-276.
Amihud, Y., Kamin, J.,Ronen, J., 1983. ‘Managerialism’, ‘Ownerism’ and Risk. Journal of Banking and Finance, 7, 189-196.
Andrade, G., Kaplan, S., 1998. How costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions That Became Distressed. Journal of Finance, 53, 1443-1493.
Baltagi, B., 1995. Econometric Analysis of Panel Data, 2nd Edition. Wiley, John & Sons, New York.
Bartram, S.M. 2000. Corporate Risk Management as a Lever for Shareholder Value Creation. Working Paper, Maastricht University.
Bartram, S., Brown, G., Fehle, F., 2003. International Evidence on Financial Derivatives Usage, Working paper, Lancaster University, University of North Carolina, University of South Carolina.
Bartram, S., Brown, G. and Conrad, J., 2007. The Effects of Derivatives on Firm Risk and Value. Working Paper, Lancaster University.
Berger, P., Ofek, E., 1995. Diversification’s Effect on Firm Value. Journal of Financial Economics, 25, 39-45.
Bessembinder, H., 1991. Forward Contracts and Firm Value: Investment Incentive and Contracting Effects. The Journal of Financial and Quantitative Analysis, 26 (3), 519-532.
Carter, D., Rogers D., Simkins B., 2004a. Does Fuel Hedging Make Economic Sense? The Case of the US Airline Industry. Working paper, College of Business Administration, Oklahoma State University, Stillwater, OK.
Carter, D., Rogers D., Simkins B., 2004b. Fuel Hedging in the Airline Industry: The Case of Southwest Airlines. Working paper, College of Business Administration, Oklahoma State University, Stillwater, OK.
Chacko, G., Tufano, P., Verter, G., 2001. Cephalon Inc. Taking risk management theory seriously. Journal of Financial Economics, 60, 449-485.
Chung, K.H., Pruit, S.W., 1994. A simple approximation of Tobin’s q. Financial Management, 23 (3), 70-79.
Dadalt, P., Donaldson, J.R., and Garner, J.L., 2003. Will any q do? Firm characteristics and divergences in estimates of Tobin’s q. Journal of Financial Research, 26, 535-551.
Dadalt, P., Gay, G., and Nam, J., 2002.Asymmetric Information and Corporate Derivatives Use. Journal of Futures Markets, 22 (3), 241-267.
Dan, C., Gu, H., and Xu, K., 2005. The Impact of Hedging on Stock Return and Firm Value: New evidence from Canadian Oil and Gas Companies. Working paper, Dalhousie University.
Fatemi, A., Luft, C., 2002. Corporate Risk Management. Costs and Benefits. Global Finance Journal, 13 (1), 29-38.
Gay, G., and Nam J., 1998. The Underinvestment Problem and Corporate Derivatives Use. Financial Management, 27 (4), 53-69.
Geczy, C., Minton, B., Schrand C., 1997. Why Firms Use Currency Derivatives. Journal of Finance, 52 (4), 1323-1354.
Graham J., Rogers, D., 2002. Do Firms Hedge in Response to Tax Incentives? Journal of Finance, 57, 815-839.
Graham J., Smith, C., 1999, Tax Incentives to Hedge. Journal of Finance, 54, 2241-2262.
Hagelin, N., Holmen, M., Knopf D. J., Pramborg, B., 2004. Managerial Stock Options and the Hedging Premium. Working paper, Stockholm University, School of Business.
Hagelin N., Pramborg, B., 2004. Hedging foreign exchange exposure: Risk reduction from transaction and translation hedging. Journal of International Financial Management and Accounting, 15, 1-20.
Hausman, J.,1978. Specification Tests in Econometrics, Econometrica, 46 (6), 1251-1271.
Howton, S., Perfect, S., 1998. Managerial Compensation and Firm Derivative Usage: An Empirical Analysis. Journal of Derivatives, 6 (2), 53-64.
Hsiao, C., 1986. Analysis of Panel Data. Econometric Society Monograph, 11, 128-153 Cambridge University Press.
Jin, Y., Jorion, P., 2006. Firm Value and Hedging: Evidence From U.S. Oil and Gas Producers. Journal of Finance, 61 (2), 893-919.
Lang, L., and Stulz, R., 1994. Tobin’s Q, corporate diversification and firm performance. Journal of Political Economy, 102, 1248-1280.
Leland, H., 1998. Agency Costs, Risk Management, and Capital Structure. Journal of Finance, 53, 1213-1243.
Lewellen, W., Badrinath, S.G., 1997. On The measurement of Tobin’s q. Journal of Financial Economics, 44, 77-122.
Lindenberg, E., and Ross S., 1981. Tobin’s q Ratio and Industrial Organization. Journal of Business 54 (1), 1-32.
Lookman, A., 2003. Does Hedging Increase Firm Value? Comparing Premia for Hedging ‘Big’ versus ‘Small’ risks. Working Paper, Carnegie Mellon University.
Myers, S., Majluf, N., 1984. Corporate Financing and Investment Decisions when Firms Have Information that Investors Do Not Have. Journal of Financial Economics, 13 (2), 187-221.
Nance, D., Smith, C., Smithson, C., 1993. On the Determinants of Corporate Hedging. Journal of Finance, 48 (1), 267-284.
Perfect, S., Wiles, K., 1994, Alternative constructions of Tobin’s Q: An empirical comparison, Journal of Empirical Finance, 1, 313-341.
Pramborg, B., 2004. Derivatives Hedging, Geographical Diversification, and Firm Market Value. Journal of Multinational Financial Management, 14, 117-133.
Purnanandam, A., 2005. Financial Distress and Corporate Risk Management: Theory and Evidence. Working Paper. Cornell University, Ithaca, NY.
Rogers, D.A., 2005. Does Executive Portfolio Structure Affect Risk Management? CEO Risk-Taking Incentives and Corporate Derivatives Usage. Journal of Banking and Finance, 26, 271-295.
White, H.,1980. A Heteroscedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroscedasticity, Econometrica, 48, 817-838.
Wysocki, P., 1998. Managerial Motives and Corporate Use of Derivatives: Some Evidence. Working Paper, University of Michigan Business School.
Zhang, Y., Huang, P., Deis, D., and Moffit, J., 2005. Discretionary accruals, hedging, and firm value. Working Paper, Louisiana State University.