2011/05/17 by Söhnke M. Bartram, Gregory W. Brown, Jennifer Conrad · 2 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Corporate Finance and Governance #Insurance and Financial Risk Management #Risk Management in Financial Firms
paper · doi:10.1017/s0022109011000275
openalex publication_date 2011/05/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/11
Abstract Using a large sample of nonfinancial firms from 47 countries, we examine the effect of derivative use on firm risk and value. We control for endogeneity by matching users and nonusers on the basis of their propensity to use derivatives. We also use a new technique to estimate the effect of omitted variable bias on our inferences. We find strong evidence that the use of financial derivatives reduces both total risk and systematic risk. The effect of derivative use on firm value is positive but more sensitive to endogeneity and omitted variable concerns. However, using derivatives is associated with significantly higher value, abnormal returns, and larger profits during the economic downturn in 2001–2002, suggesting that firms are hedging downside risk.