Assessment of the impact of the usage of derivatives on the company’s value

Abstract

During periods of increased uncertainty, financial market participants are looking for ways to manage risk. The derivatives can be considered as one of the potential instruments for hedging risk. There is no consensus in the scientific literature on whether the application of derivatives has an impact on a value of a company. Thus, the main purpose of this paper is to quantitatively assess the impact of the application of derivatives on the value of a company. The research hypothesis is formulated as follows: the use of derivatives increases the company’s value, i.e. the application of derivatives has a statistically significant positive impact on the value of the company. Seeking to achieve the main purpose and test the hypothesis, besides the analysis of relevant academic literature, the method of panel data analysis (linear multiple regression) is used to quantitatively assess the effect the application of derivatives has made on the company’s value. 28 companies (constituents of EURO STOXX 50 ESG Index) are analyzed in the period of 2005-2020. The results of the research allow stating the effect of derivatives on the value of companies has proven to be statistically significant and positive.