Derivatives Use, Firm Value, Risk and Determinants: Evidence of Korean Firms

In this paper we analyze the incentives of derivatives usage and its effect on the risk management and value of firms in Korea. We find that Korean non-financial firms use derivatives not only by the economic incentives to hedge risks but also by the irrational incentives such as the profitability o...

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Bibliographic Details
Published in:Seonmul yeongu (Online) 2011-11, Vol.19 (4), p.335-362
Main Authors: Kwon, Taek Ho, Park, Rae Soo, Chang, Uk
Format: Article
Language:English
Subjects:
Derivatives
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Summary:In this paper we analyze the incentives of derivatives usage and its effect on the risk management and value of firms in Korea. We find that Korean non-financial firms use derivatives not only by the economic incentives to hedge risks but also by the irrational incentives such as the profitability of derivative usage in the previous year. Further results show that the usage of derivatives has a negative effect on the risk management of the firm, which results in the decrease of the firm value. These results show that investors have doubt about the incentives and the effects of derivatives usage in Korea.
ISSN:2713-6647
1229-988X
2713-6647
DOI:10.1108/JDQS-04-2011-B0001