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The use of derivatives in Nordic firms

Author

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  • Tor Brunzell
  • Mats Hansson
  • Eva Liljeblom

Abstract

We contribute to the previous literature on the use of derivatives by studying separately the determinants of profit seeking versus those of hedging. In our sample of listed firms from four Nordic countries, about 62% use derivatives. Although the hedging motive clearly dominates, over half of the firms give some weight for additional income as a motive for the use of derivatives. Combining survey data on the use of derivatives with financial variables, data on management and blockholder ownership, and data on firm-level diversification, we find that very different determinants drive the use of derivatives for these two motives. Firm-level diversification is negatively related to hedging, but is positively related to the use of derivatives for additional income. Financial firms use derivatives more for profit than for hedging. We also find weak support for a value-increasing effect of the use of derivatives.

Suggested Citation

  • Tor Brunzell & Mats Hansson & Eva Liljeblom, 2011. "The use of derivatives in Nordic firms," The European Journal of Finance, Taylor & Francis Journals, vol. 17(5-6), pages 355-376.
    • Handle: RePEc:taf:eurjfi:v:17:y:2011:i:5-6:p:355-376
    DOI: 10.1080/1351847X.2010.543836
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    Citations

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    Cited by:

    1. Markus Hang & Jerome Geyer-Klingeberg & Andreas W. Rathgeber & Clémence Alasseur & Lena Wichmann, 2021. "Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 789-818, February.
    2. Md Kamal Hossain & Mammadova Gulay, 2020. "Impact of Foreign Currency Derivatives on Value of Chinese Non-financial firms," Journal of Scientific Reports, IJSAB International, vol. 2(1), pages 78-96.
    3. Hao, Xiangchao & Sun, Qinru & Xie, Fang, 2020. "Does foreign exchange derivatives market promote R&D? International industry-level evidence," Economic Modelling, Elsevier, vol. 91(C), pages 33-42.
    4. Lievenbrück, Martin & Schmid, Thomas, 2014. "Why do firms (not) hedge? — Novel evidence on cultural influence," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 92-106.
    5. Arnold, Matthias M. & Rathgeber, Andreas W. & Stöckl, Stefan, 2014. "Determinants of corporate hedging: A (statistical) meta-analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 443-458.
    6. Bruce Burton & Satish Kumar & Nitesh Pandey, 2020. "Twenty-five years of The European Journal of Finance (EJF): a retrospective analysis," The European Journal of Finance, Taylor & Francis Journals, vol. 26(18), pages 1817-1841, December.
    7. Harun Sencal, 2021. "Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(71-2), pages 367-394, December.
    8. Hassan Tanha & Michael Dempsey & Mena Labeb, 2018. "Derivatives Usage by Australian Industrial Firms: Pre-, during and post-GFC," Review of Economics & Finance, Better Advances Press, Canada, vol. 11, pages 31-39, February.

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