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Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure

Author

Listed:
  • Numan Khan

    (National College of Business Administration and Economics (NCBA&E))

  • Khurshid Ali

    (Salford University Manchester, UK)

  • Alina Kiran

    (Lecturer at Bahria University Islamabad)

  • Riaqa Mubeen

    (Graduate from University of Agriculture, Faisalabad, Pakistan)

  • Zeeshan Khan

    (Pakistan Institute of Development Economics (PIDE))

  • Nasir Ali

    (COMSATS Institute of Information Technology, Islamabad)

Abstract

This study aims to investigate the factors that affect the derivatives usage of non-financial listed firms of Pakistan to hedge foreign exchange exposure by using data of 51 non-financial firms listed on Pakistan stock exchange from 2010-2013. The dependent variable was derivative usage which was used as dummy since no financial information was disclosed in company annual reports but the decision of usage or not. Non-parametric tests were uses which is univariate analysis to calculate the mean difference between users and non-users of derivative usage for hedging purposes. Further, logistic regression model was used to analyze the impact of financial distress costs, tax convexity, underinvestment problem, profitability, managerial holdings of the company and foreign sales on firm’s decision to whether they use FX derivatives for hedging purposes or not. The result shows that financially distressed firms, having lower managerial holdings and lower interest coverage ration with high foreign sales are using FX derivatives in Pakistan.

Suggested Citation

  • Numan Khan & Khurshid Ali & Alina Kiran & Riaqa Mubeen & Zeeshan Khan & Nasir Ali, 2017. "Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure," Journal of Banking and Financial Dynamics, Sophia, vol. 1(1), pages 9-20.
    • Handle: RePEc:ajn:jobafd:2017:p:9-20
    DOI: https://doi.org/10.20448/journal.525/2017.1.1/525.1.9.20
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    References listed on IDEAS

    as
    1. Gerald D. Gay & Jouahn Nam, 1998. "The Underinvestment Problem and Corporate Derivatives Use," Financial Management, Financial Management Association, vol. 27(4), Winter.
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    Cited by:

    1. Maheran Zakaria & Muhammad Saiful Anuar Yusoff & Zuraidah Sanusi, 2019. "Governance and Efficiency of Zakah Distributions Based on the Dire Necessities of Maqasid Al-Syariah," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 191-203, August.

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