2009/03/01 by Söhnke M. Bartram, Gregory W. Brown, Frank Fehle · 2 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Risk Management in Financial Firms #Credit Risk and Financial Regulations #Insurance and Financial Risk Management
paper · doi:10.1111/j.1755-053x.2009.01033.x
openalex publication_date 2009/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23
Theory predicts that nonfinancial corporations might use derivatives to lower financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to explain the determinants of corporate derivatives usage. Instead, we show that derivative usage is determined endogenously with other financial and operating decisions in ways that are intuitive but not related to specific theories for why firms hedge. For example, derivative usage helps determine the level and maturity of debt, dividend policy, holdings of liquid assets, and international operating hedging.