Accounting Papers

Document Type

Journal Article

Date of this Version

12-2003

Publication Source

Journal of Financial Economics

Volume

70

Issue

3

Start Page

423

Last Page

461

DOI

10.1016/S0304-405X(03)00179-X

Abstract

For 234 large non-financial corporations using derivatives, we report the magnitude of their risk exposure hedged by financial derivatives. If interest rates, currency exchange rates, and commodity prices change simultaneously by three standard deviations, the median firm's derivatives portfolio, at most, generates $15 million in cash and $31 million in value. These amounts are modest relative to firm size, and operating and investing cash flows, and other benchmarks. Corporate derivatives use appears to be a small piece of non-financial firms’ overall risk profile. This suggests a need to rethink past empirical research documenting the importance of firms’ derivative use.

Copyright/Permission Statement

© 2003. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

derivatives, hedging, risk management, financial instruments

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Date Posted: 27 November 2017

This document has been peer reviewed.