Currency and Interest-Rate Derivatives Use in US Firms

Howton, Shawton D.; Perfect, Steven B.

doi:10.2307/3666417

Cited by 124 publications

(125 citation statements)

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“…Belk and Glaum (1990); Lessard and Zaheer (1990); Edelshain (1992); Glaum and Roth (1993); Batten et al (1993) reported on the exchange risk management practices of multinational corporations. Others, such as Bodnar et al (1995); Bodnar et al (1996;Berkman et al (1997); Grant and Marshall (1997); Howton and Perfect (1998); Bodnar and Gebhardt (1998) have reported on the use of derivative financial instruments by non-financial firms. Yet others, such as Nance et al (1993); Mian (1996);Jalilvand et al (1997); Geczy et al (1997) have investigated the question of the determinants of corporate hedging policies.…”

Section: Introductionmentioning

confidence: 99%

Credit risk management: a survey of practices

Fatemi

Fooladi

2006

Managerial Finance

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Section: Introductionmentioning

confidence: 99%

Credit risk management: a survey of practices

Fatemi

Fooladi

2006

Managerial Finance

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“…Finally, although the sign is sometimes in the predicted direction, the interest coverage ratio is often insignificant at conventional levels (Berkman and Bradbury, 1996;Fok, Carroll and Chiou, 1997;Howton and Perfect, 1998). The remaining variables generate mixed results.…”

Section: Cost Of Financial Distressmentioning

confidence: 95%

“…Empirical studies provide mixed support for the underinvestment hypothesis. Some studies find evidence for the relation between growth opportunities and corporate risk management (Allayannis and Ofek, 2001;Dolde, 1995;Fok, Carroll and Chiou 1997;Gay and Nam, 1998;Géczy, Minton and Schrand, 1997;Howton and Perfect, 1998;Knopf, Nam and Thornton, 2002;Lin and Smith, 2007;Nance, Smith and Smithson, 1993). On the contrary, Fehle (1998), Francis and Stephan (1993), Goldberg et al (1994), Graham and Rogers (1999), Lewent and Kearney (1990), Mian (1996), Samant (1996), Schrand and Unnal (1998), find converse results.…”

Section: Shareholders Versus Debtholdersmentioning

confidence: 99%

“…The long-term debt ratio and the interest coverage ratio are widely used to analyze the relationship between risk management and expected financial distress costs. Despite the discussed potential problems which accompany the use of this proxy, most studies obtain a significant positive relation between the long-term debt ratio and corporate hedging (Bartram, Brown and Fehle, 2009;Berkman and Bradbury, 1996;Dionne and Triki, 2005;Fok, Carroll and Chiou, 1997;Gay and Nam, 1998;Graham and Rogers, 2002;Guay, 1999a;Haushalter, 2000;Howton and Perfect, 1998;Mian, 1996). This association, however, seems to be only significant for firms with strong corporate governance structures (Lel, 2006).…”

Section: Cost Of Financial Distressmentioning

confidence: 99%

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Rationales for Corporate Risk Management - A Critical Literature Review

2013

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This paper describes theoretical motivations for corporate risk management activities and empirical evidence provided by different scholars on such rationales. These theoretical considerations can be extended also to the new risk management practices such as enterprise risk management. Based on modern financial theory's assumption that markets are perfectly efficient, organizations should not implement risk management practices since they cannot contribute to add firm value. However, in the presence of market imperfections, risk management, stabilizing firm's earnings, can benefit companies in the following manners: reducing transaction costs especially the expected costs of bankruptcy, lowering corporate taxes, aligning financing and investment policies and reducing costs associated with agency problems and asymmetric information.

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“…In particular, 42% use foreign exchange, 38% use interest rate, and 28% use commodity price derivatives. A study of 451 firms by Howton and Perfect (1998) results in percentages of derivatives use of 62% for all derivatives contracts, 45% for FX derivatives, and 45% for interest rate derivatives. The most recent and most comprehensive study on derivatives usage based on accounting information is Bartram, Brown and Fehle (2003), covering a sample of 7,263 firms in 48 countries.…”

Section: Evidence Of the Use Of Options By Nonfinancial Corporationsmentioning

confidence: 99%

The use of options in corporate risk management

Bartram

2006

Managerial Finance

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This paper investigates the motivations and practice of nonfinancial firms with regard to using financial options in their risk management activities. To this end, it provides a comprehensive account of the existing empirical evidence on the use of derivatives in general and options in particular by nonfinancial corporations across different underlyings and countries. Overall, a significant number of 15%-25% of the firms outside the financial sector use financial options. This reflects the fact that options are very versatile risk management instruments that can be used to hedge various types of exposures, linear as well as nonlinear. In particular, options are a useful component of corporate risk management if exposures are uncertain, e.g. due to price and quantity risk. Depending on the correlation between price and quantity risk, the optimal hedge portfolio consists of a varying combination of linear and nonlinear risk management instruments. Moreover, the accounting treatment as well as liquidity effects can impact the choice of derivative instrument. At the same time, there may be agency-related incentives to use options because of their role to present dual bets on both direction as well as future volatility of the underlying. Keywords The Use of Options in Corporate Risk Management AbstractThis paper investigates the motivations and practice of nonfinancial firms with regard to using financial options in their risk management activities. To this end, it provides a comprehensive account of the existing empirical evidence on the use of derivatives in general and options in particular by nonfinancial corporations across different underlyings and countries. Overall, a significant number of 15%-25% of the firms outside the financial sector use financial options. This reflects the fact that options are very versatile risk management instruments that can be used to hedge various types of exposures, linear as well as nonlinear. In particular, options are a useful component of corporate risk management if exposures are uncertain, e.g. due to price and quantity risk. Depending on the correlation between price and quantity risk, the optimal hedge portfolio consists of a varying combination of linear and nonlinear risk management instruments. Moreover, the accounting treatment as well as liquidity effects can impact the choice of derivative instrument. At the same time, there may be agency-related incentives to use options because of their role to present dual bets on both direction as well as future volatility of the underlying.

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Currency and Interest-Rate Derivatives Use in US Firms

Cited by 124 publications

References 0 publications

Credit risk management: a survey of practices

Credit risk management: a survey of practices

Rationales for Corporate Risk Management - A Critical Literature Review

The use of options in corporate risk management

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