Derivatives Usage In Risk Management By Turkish Non-financial Firms And Banks: A Comparative Study

Abstract

The purpose of this study to compare the previous research about how the nonfinancial companies listed in the Istanbul Stock Exchange (ISE) and deposit banks in Turkey have disclosed information regarding the usage of derivatives, and the accounting treatment of these derivatives. The results of these studies indicate that banks and the non-financial companies listed in the ISE-100 Indices, which represent 86 % of the market capitalization, use derivatives mainly for hedging purposes. However, the evidence that they usually prefer reporting their gains/losses arising from these transactions as "held for trading" instead of applying "hedge accounting", since they could not meet the compulsory criterions described in the IAS 39.

The usage of currency derivatives in multilateral banks

“…CDs' usage is already documented in previous studies for commercial banks (Selvi and Turel, 2010;Adkins et al, 2007;Sinkey and Carter, 2000, 1994. But for MBs as a group, this has not been done.…”

“…CDs in the study are those reported in the audited reports in 2005 or 2006. The intent of the study was to do a cross-sectional analysis, as done by previous researchers (Clark and Mefteh, 2011;Selvi and Turel, 2010;Batram et al, 2009) who have investigated CDs' usage. We dropped and excluded those MBs whose audited annual reports were not in English.…”

“…They can also trade in CDs to obtain profits from exchange rate movements. Several studies have investigated the usage of CDs in commercial banks (Selvi and Turel, 2010;Adkins et al, 2007;Sinkey and Carter, 2000, 1994. The usage of CDs has also been studied extensively in non-financial firms (Chong et al, 2014;Clark and Mefteh, 2011;Batram et al, 2009;Geczy et al, 1997), insurance firms (Raturi, 2005) and real estate investment trust industry (Horng and Wei, 1999).…”

“…The four fundamental types of CDs used for hedging and speculating and combinations in which they can be used discussed in the literature (Chong et al, 2014;Intrisano, 2012;Saunders and Cornett, 2010;Butler, 2012;Selvi and Turel, 2010) are forwards, futures, options and swaps. Currency forwards are contracts between two parties which specify the rate at which an agreed amount of two currencies is to be exchanged at a future date (Buckley, 2012;Edwardes, 2000).…”

An Empirical Investigation on the Use of Derivative Instruments by Industrial Firms in Turkey

“…Accordingly, 34% of Greek firms (Kapitsinas, 2008), 33% of Peruvian firms (Martin et al, 2009), 60% of the Jordanian firms (ALshbiel and Tahat, 2014) are found to use financial derivatives. In Turkey, the findings based on footnote disclosures (Selvi and Türel, 2010) show that 35% of the non-financial companies listed in ISE-100 Indices use derivative instruments. These results raise an important question regarding the determinants of derivative usage, especially in emerging countries.…”