Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis

Cash holdings and corporate financialization: Evidence from listed Latin American firms

“…Interestingly, both the contemporaneous and lagged value of net non-operating income become positive (but non-statistically significant) for Brazil only. This result is consistent with the previous literature that found speculative activities carried by those firms before the crisis (Farhi and Borghi, 2009; Rossi Júnior, 2013) as well as case studies (Zeidan and Rodrigues, 2013). For Chile and Mexico, interest income still maintains a negative and statistically significant value.…”

“…Second, we also evaluate whether our findings are driven by a specific sector (Tables A7–A8). To that end and based on the conclusions of previous works that found higher speculating activity for those firms with higher exchange rate exposure and export activity (Farhi and Borghi, 2009; Rossi Júnior, 2013), we interact interest income variable with a sectoral dummy for the primary sector. In both periods, when significant, values are either negative or flip from positive to negative.…”

“…Zeidan and Rodrigues (2013) focus on the example of a Brazilian company, Aracruz Celulose, who lost more than US$2 billion with currency derivatives. Using a panel of 200 Brazilian NFCs which represent approximately 68% of all market capitalization in Brazil, Rossi Júnior (2013) shows that approximately 15% of derivatives users could be classified as speculators in 2008 and 2009.…”

“…Surprisingly, there is no study on that relation for the case of emerging market economies even though the link may be stronger. We say this taking into account that, in the case of emerging market economies, firms have higher possibilities to get access to high yielding government bonds (Bonizzi, 2013; Ebeke and Lu, 2014) and speculate with national currencies (Chui et al, 2014; Farhi and Borghi, 2009; Rossi Júnior, 2013; Zeidan and Rodrigues, 2013). Moreover, recent developments in international capital markets have left firms from emerging market economies in a better position to exploit interest rates differentials and carry trade opportunities stemming from domestic currency appreciation.…”

Derivative Risk Information Disclosure Effect on Financial Reporting Quality Evidence from Selected Listed Deposit Money Banks in Nigeria

“…For instance, Enron's collapse was attributed to its use of energy derivatives, Barings Bank lost £927 million in a futures contract, and Metallgesellschaft AG suffered over $1 billion in future hedge losses [14][15][16][17][18][19][20][21]. More recently, Mitchells and Butlers' hedging failure of £391 million resulted in a loss of £274 million, eroding shareholders' value by 30% and wiping out the company's total profit from the previous two years [22][23][24][25][26][27][28][29]. Various empirical studies have demonstrated insufficient reporting of derivative usage in companies under different regulatory regimes in the US and the UK [30][31][32][33][34][35][36].…”