Effects of Use of Derivatives on Financial Performance of Companies Listed in the Nairobi Security Exchange

Chanzu, Luyali Newton; Gekara, Mouni

doi:10.6007/ijarafms/v4-i4/1238

Cited by 4 publications

(6 citation statements)

References 44 publications

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“…Choi et al (2013) examine the financial and operational hedging activities of US pharmaceutical and biotech firms during 2001-2006 and find that using financial derivatives impacts financial performance, hence increases the value of a company. Similar evidence is put forth by Chanzu and Gekara (2014), who conduct a content analysis based on survey answers and found a positive impact of derivative usage on the financial performance of 11 listed companies in the Nairobi Securities Exchange. Furthermore, Lau (2016) suggest that the use of derivatives leads to higher ROA and ROE, which are key drivers of a company's market value in Malaysia.…”

Section: Literature Reviewsupporting

confidence: 73%

How Does the Use of Derivatives Affect Firms’ Financial Performance in Turkish Non-Life Insurance Industry?

Alan¹,

Aybars²

2021

JORE

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Hedging risk is the major reason why derivative instruments have been developed in the 1840s. However, due to the ever-changing conditions in the financial markets, these instruments have further been used for speculative purposes and arbitrage opportunities. Nevertheless, this paper focuses on the influence of derivative usage for hedging purposes on the profitability of firms in the Turkish nonlife insurance industry. The data consists of 25 non-life insurance companies operating in Turkey from 2009 to 2019, inclusive. The findings based on panel data analysis reveal that derivative usage contributes to the firms' financial performance measured by return on assets (ROA) in that firms that use derivatives demonstrate a 5% higher ROA figure in comparison to non-users.

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Section: Literature Reviewsupporting

confidence: 73%

How Does the Use of Derivatives Affect Firms’ Financial Performance in Turkish Non-Life Insurance Industry?

Alan¹,

Aybars²

2021

JORE

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“…This is because the t-statistic value of 0.6926 with a probability or significance value of 0.4894 is greater than α = 0.05. This means that the effect of Business Risk (BR) on Hedging Policy (HED) is not significant (Clark & Mefteh, 2011;Fitriasari, 2011;Chanzu & Gekara, 2014;Robiyanto et al, 2017). Business risk which in this study is proxied by foreign sales to total sales ratio does not play a role in increasing the company's hedging policy.…”

Section: Model Specifications Testmentioning

confidence: 63%

“…While foreign sales to total sales ratio used as a proxy of business risk (Al-Shboul & Alison, 2009;Clark & Mefteh, 2011;Chanzu & Gekara, 2014). Business risk is a condition when companies face the possibility of lower profits than targeted, or experience a loss.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…The role of capital market imperfections in determining the demand for hedging (Belghitar et al, 2013). If access to external financing is expensive, companies with investment projects that require financing will hedge their cash flows to avoid losses, and immediately enter the capital market (Clark & Mefteh, 2011;Fitriasari, 2011;Chanzu & Gekara, 2014;Robiyanto et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Agency Costs on Hedging Policy in Indonesian Public Companies

Paranita

Aditya

2020

JDM

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The purpose of this study is to examine the effect of agency costs on company hedging policies. This study use the concept of hedging policies derived from synchronizing foreign exchange derivatives based on agency theory and hedging with foreign exchange debt based on balancing theory. The novelty of this research is the application of the synthesis of agency theory and balancing theory as indicators of hedging policies. The hedging policy based on foreign exchange derivatives is synchronized with the hedging policy based on foreign debt. The population was companies listed on the Indonesia Stock Exchange (IDX) in 2012-2017. Using the purposive sampling method, 78 companies for each year from 2012 - 2017 were obtained with a total of 468 data. This research used a panel data regression method. The hypotheses were tested with the Hausman Test, which shows the best research model is the Fixed Effect Model. The results of the study concluded that financial distress and underinvestment had a significant positive effect on hedging policies, while business risk did not affect hedging policies because most companies had relatively low foreign sales. The findings of this study have theoretical implications that support agency and balancing theory.

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“…They find positive effect of interest rate and foreign exchange derivatives on stock prices of sample banks. Additionally, Chanzu and Gekara () examine the effects of use of derivatives on financial performance of companies listed in the Nairobi Securities Exchange (NSE). The findings reveal that the use of derivative instruments—such as forwards, swaps, options, and futures—affects positively, the financial performance of companies listed in NSE.…”

Section: Literature Reviewmentioning

confidence: 99%

Analyzing the effect of derivatives on the financial soundness of commercial banks in Italy: An approach based on the CAMELS framework

Keffala

2018

Rev Financ Econ

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Italian economy is among the biggest economies in the Europe which suffered from the repercussions of the global financial crisis during this last decade. The weakness of Italian banking system coincides with the common debate about the implication of derivatives in the distress of banks’ soundness. Thus, the aim of our research is to examine the effect of derivative instruments on the banks’ soundness in Italy. To reach our goal, the CAMELS approach is employed to define the soundness of Italian commercial banks. To overcome the endogeneity issue of variables, an appropriate econometric procedure, namely the dynamic Generalized Method of Moments (GMM system) is applied using data from 22 commercial banks in Italy over the period 2005–2015. Explanatory variables are defined by derivative instruments (forwards, swaps, options, and futures), bank‐specific variable (bank's size as non‐CAMELS variable), industry‐specific variables (CR3, CR5, and HHI as indicators of bank's sector and market concentrations), and country‐specific variables (GDP and inflation). The main results reveal that the majority of the CAMELS indicators are favorably affected by derivative instruments especially forwards and options. The most important conclusion is that using derivative instruments does not threaten the financial soundness of commercial banks in Italy. As major implication decision‐makers and experts—after the global financial crisis—should not consider derivatives in part as responsible of the fragility of the Italian banking system.

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Effects of Use of Derivatives on Financial Performance of Companies Listed in the Nairobi Security Exchange

Abstract: This study investigated the effects of use of derivatives on financial performance of companies listed in the Nairobi Securities Exchange (NSE

Cited by 4 publications

References 44 publications

How Does the Use of Derivatives Affect Firms’ Financial Performance in Turkish Non-Life Insurance Industry?

How Does the Use of Derivatives Affect Firms’ Financial Performance in Turkish Non-Life Insurance Industry?

The Effect of Agency Costs on Hedging Policy in Indonesian Public Companies

Analyzing the effect of derivatives on the financial soundness of commercial banks in Italy: An approach based on the CAMELS framework

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