The Effects of Derivatives on Firm Risk and Value

Bartram, Söhnke M.; Brown, Gregory W.; Conrad, Jennifer

doi:10.1017/s0022109011000275

Cited by 305 publications

(239 citation statements)

References 56 publications

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“…The multiple regression reveals that of the three factors assumed to influence value of the firm using the Tobin's Q, only the profitability of the business was able to statistically affect the firm value using the Tobin's Q. Different investigators concluded that profitability has significant influence on firm value (Bartram et al 2011;Naito and Laux 2011).…”

Section: Resultsmentioning

confidence: 99%

Influence of Profitability to the Firm Value of Diversified Companies in the Philippines

Sucuahi¹,

Cambarihan²

2016

AFR

128

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The main objective of every company is to maximize the assets or firm value. Maximizing firm value is essential for a company because it means increasing the wealth of shareholders as well. This study aims to determine if there is significant influence between the company's profile such as industry, company age and its profitability with the firm value using Tobin's Q model. The proponents selected 86 diversified companies in the Philippines by gathering and analyzing annual financial reports on 2014 in the Philippine Stock Exchange (PSE) to obtain the objective of the study and also employed predictive correlational design. Frequency, Mean and Multiple Regression were used to determine the significant influence between the independent and dependent variables. The multiple regression reveals that of the three factors assumed to influence value of the firm using the Tobin's Q, only profitability shows significant positive impact on the firm's value.

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Section: Resultsmentioning

confidence: 99%

Influence of Profitability to the Firm Value of Diversified Companies in the Philippines

Sucuahi¹,

Cambarihan²

2016

AFR

128

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“…Warren Buffett has described derivatives as “financial weapons of mass destruction” (Buffett, 2003) and many people have pointed to credit default swaps as having an important contributing role to the financial crisis of 2007–2009 (Financial Crisis Inquiry Commission, 2011). While it is true that options and futures potentially do have some economic value when used to hedge risk (Bartram, Brown, & Conrad, 2011; Moschini & Lapan, 1995), they do not have this value when used for speculative purposes, which they often are. Furthermore, the latest research would suggest that options and futures contribute to destabilization of market prices (Somanathan & Anantha Nageswaran, 2015).…”

Section: Resultsmentioning

confidence: 99%

The conceptual and empirical relationship between gambling, investing, and speculation

Arthur¹,

Williams²,

Delfabbro³

2016

J Behav Addict

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Background and aimsTo review the conceptual and empirical relationship between gambling, investing, and speculation.MethodsAn analysis of the attributes differentiating these constructs as well as identification of all articles speaking to their empirical relationship.ResultsGambling differs from investment on many different attributes and should be seen as conceptually distinct. On the other hand, speculation is conceptually intermediate between gambling and investment, with a few of its attributes being investment-like, some of its attributes being gambling-like, and several of its attributes being neither clearly gambling or investment-like. Empirically, gamblers, investors, and speculators have similar cognitive, motivational, and personality attributes, with this relationship being particularly strong for gambling and speculation. Population levels of gambling activity also tend to be correlated with population level of financial speculation. At an individual level, speculation has a particularly strong empirical relationship to gambling, as speculators appear to be heavily involved in traditional forms of gambling and problematic speculation is strongly correlated with problematic gambling.Discussion and conclusionsInvestment is distinct from gambling, but speculation and gambling have conceptual overlap and a strong empirical relationship. It is recommended that financial speculation be routinely included when assessing gambling involvement, and there needs to be greater recognition and study of financial speculation as both a contributor to problem gambling as well as an additional form of behavioral addiction in its own right.

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“…They obtained a hedging premium (on average, between 9% and 20%) for firms with strong internal corporate governance (such as those with institutional investors) and those which reside in countries with strong external governance (such as those with English-based laws that especially protects investor's rights). Bartram, Brown, and Conrad (2011) also studied a broad sample of firms from 47 countries between 1998 and 2003. They obtained that hedging firms have 10-25% lower cash flow volatility, 3-10% lower standard deviation of returns, 6-22% lower betas and 1-7% higher value than non-hedging firms.…”

Section: Related Literaturementioning

confidence: 99%

“…Chung and Pruitt (1994) propose the market to book ratio as an alternative way of estimating Tobin's Q. The primary advantage of this method is its simplicity, which allows us to create values for all firms (Bartram, Brown, and Conrad 2011). As pointed out by DaDalt, Donaldson, and Garner (2002), this is especially important because most studies are based on samples where the availability of data is a critical issue.…”

Section: Company Value Estimated By Tobin's Qmentioning

confidence: 99%

Is value creation consistent with currency hedging?

Búa

González

López

et al. 2013

The European Journal of Finance

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This paper analyzes value creation through currency hedging in the Spanish market. The results show that the hedging with derivatives generated an average premium of 1.53% and that foreign currency debt generated 7.52%, with respect to company value approximated by Tobin's Q, while operational hedging does not affect company value. Moreover, in half of the observations corresponding to companies that hedged with derivatives, the value premium was between 0.08% and 0.99%. In the case of foreign currency debt, the range was between 1.79% and 10.37%. It demonstrates that the contribution of currency hedging to company value fluctuates considerable according to the volume of financial hedging. Thus, an empirical study of this aspect which only analyses the decision to hedge through dummy variables to define financial hedging, as empirical previous studies, can lead to biased results in terms of estimated premium amounts, because it assumes a homogenous treatment of companies regardless of hedging volumes. The European Journal of Finance 913This paper aims to provide an answer to the question of whether using currency hedging is a value adding corporate activity in the Spanish market. 1 We focus our analysis on financial hedging instruments that are derivatives and foreign currency debt. We also examine operational hedging associated with geographic diversification. 2 This paper makes three major contributions to the literature regarding. First, to our knowledge it is the first empirical research to specifically target the Spanish market. Furthermore, there is only one previous empirical study in the Eurozone. Clark and Mefteh (2010) investigated the relationship between foreign currency derivatives use and firm value on a sample of French firms in 2004. However, we also study the impact of foreign currency debt and operational hedging use on value creation over the period 2004-2007. Most research has focused on the US market (Allayannis and Weston 2001; Allayannis, Ihrig, and Weston 2001; Graham and Rogers 2002; Gleason, Kim, and Mathur 2005), while there are only two previous studies focusing on the British market (Clark and Judge 2008; Belghitar, Clark, and Judge 2008). Eurozone is the main source of imports. However, 40.9% of imports came from non-EU countries in 2007 and there are countries that pose a significant turnover as are China, the USA and UK. China is the major source of Spanish imports outside the EU and the fourth Spanish supplier in 2007.Second, many studies focused only on financial hedging with derivatives. Our research has included foreign currency debt and operational hedging. Although Allayannis, Ihrig, and Weston (2001) also studied foreign currency debt and derivatives, they did not identify the value premium associated with each financial hedging instrument. Only Clark and Judge (2008) distinguished these value premiums, but these authors only included the operational hedging as a control variable. In addition, most previous studies used dummy variables as proxies for currency hedging. Howev...

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The Effects of Derivatives on Firm Risk and Value

Cited by 305 publications

References 56 publications

Influence of Profitability to the Firm Value of Diversified Companies in the Philippines

Influence of Profitability to the Firm Value of Diversified Companies in the Philippines

The conceptual and empirical relationship between gambling, investing, and speculation

Is value creation consistent with currency hedging?

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