An Empirical Study of the Utilization of Futures and Options by Corporate Management

Block, Stanley B.; Gallagher, Timothy J.

doi:10.1111/j.1540-6288.1986.tb00672.x

Cited by 6 publications

(4 citation statements)

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“…For example, finding that smaller (arguably more constrained) firms hedge less is not necessarily evidence against the CR rationing hypothesis of risk management. In fact, smaller companies might not be able to hedge as setting up a risk management program is too costly (Mian, ), they do not have the collateral required by the hedging counterparties (Rampini and Viswanathan, , ), or, more simply, they do not face significant hedgeable risks (Booth, Smith, and Stolz, ; Block and Gallagher, ; Bodnar et al., ; Petersen and Thiagarajan, ) . By focusing on companies with a risk management program in place and asking their risk manager why they hedge, our study mitigates the effect of these confounding factors.…”

Section: Survey Design Survey Sample Characteristics and Archival Dmentioning

confidence: 99%

The Theory and Practice of Corporate Risk Management: Evidence from the Field

Giambona¹,

Graham²,

Harvey³

et al. 2018

Financial Management

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We survey more than 1,100 risk managers from around the world regarding their risk management policies. We find evidence consistent with some traditional theories of risk management, but not with all. We then study “why” or “why not” firms hedge and find that almost 90% of risk managers in nonfinancial firms hedge to increase expected cash flow. We also find that 70% to 80% of risk managers hedge to smooth earnings or to satisfy shareholders’ expectations. Our analysis also suggests that regulatory changes implemented to increase market stability (e.g., Dodd‐Frank Act) could discourage corporate hedging. Finally, we provide evidence regarding hedging in six areas of risk: interest rate, foreign exchange, commodity, energy, credit, and geopolitical. We find that operational hedging is more common than financial hedging in all risk areas except foreign exchange.

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Section: Survey Design Survey Sample Characteristics and Archival Dmentioning

confidence: 99%

The Theory and Practice of Corporate Risk Management: Evidence from the Field

Giambona¹,

Graham²,

Harvey³

et al. 2018

Financial Management

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“…Over the past three decades many different studies on financial derivatives use by non-financial firms were published, covering different aspects and types of derivative use in hedging a wide spectrum of risk types, which non-financial firms face while conducting their day to day business. Some most influential early studies describing the use of derivatives by non-financial firms are ones done by the following authors: Block and Gallagher (1986), Dolde (1993), Judge (1995), Berkman and Bradbury (1996); Bodnar and Gebhardt (1997), Hakkarainen et al, (1997), Bodnar et al (1998), Alkebäck and Hagelin (1999), El-Masry (2001), etc.…”

Section: A Review Of Previous Researchmentioning

confidence: 99%

“…In the mid-1980s, characterized by the growth of financial derivative market in USA, Block and Gallagher (1986) examined the corporate use of derivatives in interest rate exposure hedging activity in the USA, showing that one of five firms used interest rate futures and options to hedge the interest rate exposure, with a higher usage degree by larger firms and firms in traditionally commodity-oriented industries. Later, Dolde (1993) reported that large companies diverged greatly in the scope and sophistication of their approach to risk management, despite bigger firms could profit of a greater portfolio diversification, making the risk exposure less urgent.…”

Section: A Review Of Previous Researchmentioning

confidence: 99%

The Use of Financial Derivatives in Emerging Market Economies: An Empirical Evidence from Bosnia and Herzegovina's Non-Financial Firms

Kozarević¹,

Jukan²,

Civic³

2014

RWE

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This paper discusses development of financial derivatives markets in emerging market economies, focusing on the use of financial derivatives in risk management purposes of non-financial firms in Bosnia and Herzegovina. For achieving the research goals authors collected data on the derivatives market structure and types of derivative instrument traded, focusing commercial banks, because of the authors' prior knowledge of the derivatives market. Additionally, in order to assess the current state and development perspectives of derivatives usage by the non-financial firms, authors conducted a research on the random sample of non-financial firms, using data from the Foreign Trade Chamber of Bosnia and Herzegovina as well as the information from lists of derivatives users-clients provided by some banks of Bosnia and Herzegovina. The research shows that derivatives market in the country exists as an over-the-counter market, where banks play dominant role and offer different types of derivative instruments. Three types of derivatives are being offered: currency forwards, currency swaps, and interest rate forwards. The main reason for the poor offer is low demand, lack of non-financial firms' knowledge about benefits of derivatives, and low number of business operations on the global markets by the non-financial firms.

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“…During the last three decades, several studies have examined risk management practices, focusing on management behaviour and the use of innovative financial instruments. Block and Gallagher () examined the use of derivatives instruments for hedging interest rate exposure in the USA, post‐October 1979, when the Federal Reserve changed its policy, leading to an increase in the interest rates and interest rate volatility. Results show that approximately one out of five firms used interest rate futures and options to hedge the interest rate exposure, with a higher usage degree by larger firms and companies in commodity‐oriented industries.…”

Section: A Review Of Previous Surveysmentioning

confidence: 99%

Risk Management for Italian Non‐Financial Firms: Currency and Interest Rate Exposure

Bodnar

Consolandi

Gabbi

et al. 2012

Euro Fin Management

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This paper surveys risk management practices among Italian non-financial firms. This paper’s contribution lies in investigating derivative usage particular to Italian businesses, a groupwhose public disclosure of derivative instruments is not routine. Italy is characterised by a high percentage of small and medium sized family run\ud firms. The survey examines determinants of currency and interest rate derivative use with respect currency and to firm size, geographical location, rating, industry, access to capital markets and educated management. The results from the logistic regressions suggest that Italian non-financial firms’ use of derivative contracts is\ud strongly influenced by these characteristics

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An Empirical Study of the Utilization of Futures and Options by Corporate Management

Cited by 6 publications

References 0 publications

The Theory and Practice of Corporate Risk Management: Evidence from the Field

The Theory and Practice of Corporate Risk Management: Evidence from the Field

The Use of Financial Derivatives in Emerging Market Economies: An Empirical Evidence from Bosnia and Herzegovina's Non-Financial Firms

Risk Management for Italian Non‐Financial Firms: Currency and Interest Rate Exposure

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