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Corporate derivatives use policy and information environment

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  • J. Barry Lin

    (Khalifa University)

  • Christos Pantzalis

    (University of South Florida)

  • Jung Chul Park

    (University of South Florida)

Abstract

We provide evidence consistent with the notion that prudent use of financial derivatives improves firms’ information environment. We show that firms with sophisticated and comprehensive derivatives use policies display lower levels of uncertainty about future cash flows, volatility of future income and sales growth, and equity mispricing than those that do not use derivatives. However, we also show that policies that consist of large positions in a single type of derivative contract are not likely to produce similar benefits. These results remain intact even after accounting for the endogenous nature of derivatives use policy and information risk and mispricing.

Suggested Citation

  • J. Barry Lin & Christos Pantzalis & Jung Chul Park, 2017. "Corporate derivatives use policy and information environment," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 159-194, July.
    • Handle: RePEc:kap:rqfnac:v:49:y:2017:i:1:d:10.1007_s11156-016-0586-9
    DOI: 10.1007/s11156-016-0586-9
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    5. Bartram, Söhnke M., 2019. "Corporate hedging and speculation with derivatives," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 9-34.

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    More about this item

    Keywords

    Financial risk management; Information uncertainty; Mispricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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