Value‐relevance of foreign‐exchange and interest‐rate derivatives disclosure

Abstract

Purpose -This paper aims to examine the state of risk management practices among Malaysian listed firms and evaluates the value-relevance of the notional amount of foreign-exchange and interest-rate derivatives (FCDs) used by listed firms over the period [2003][2004][2005][2006][2007]. Design/methodology/approach -Application of linear regression framework. Findings -It is found that a few Malaysian firms hedge market risks. Firms in the plantation, industrial product, trading services, and consumer products manufacturing sectors are the main users of the FCDs in Malaysia. There is a significant positive correlation between total earnings and the use of derivatives. The findings seem to suggest that although disclosed notional amount of the derivatives have value-relevance but its contribution to a firm's valuation is very minimal in Malaysia compared to other countries. Practical implications -The findings imply that those investors who have investment in those firms who use derivatives to hedge against foreign currency and interest risks benefit, albeit marginally. At present, most of the Malaysian firms are either cautious or unsure about the use of derivative instruments. There is a need to inform managers about usefulness of the derivatives and market risk reporting that would contribute to greater financial transparency. Originality/value -The author believes that this is the first study to provide survey findings on the use of derivatives instruments and their value-relevance in Malaysia.

Market Risk Information Disclosure: A Case of Companies Within Psi 20

“…No que concerne ao conceito de risco de mercado, Ameer (2009) e Othman e Ameer (2009) identificam-no como o risco de perda decorrente das mudanças adversas nas taxas de mercado e preços, como as taxas de juros, de câmbio, preços de mercadorias, ou as cotações das ações. Trata-se de uma definição semelhante à apresentada no normativo contabilístico.…”

“…Verificamos que entre estes, uns incidem sobre a generalidade da informação divulgada pelas empresas, seja ela voluntária ou obrigatória (RAJGOPAL, 1999;BERETTA e BOZZOLAN, 2004;LINSLEY e SHRIVES, 2006;KRETZSCHMARA et al, 2007;AMEER, 2009;AMRAN et al, 2009) Rajgopal (1999, apud LINSLEY e SHRIVES, 2006) testou a relação entre a exposição dos preços de mercadorias ao risco e a sensibilidade do mercado em relação ao preço do petróleo e ao preço do gás. Como a relação foi confirmada, concluiu que as divulgações eram "úteis" no sentido de que eram indicadores fiáveis da sensibilidade ao preço.…”

“…Efetuamos a análise de conteúdo dos relatórios e contas, do ano de 2010, das empresas da amostra e verificamos que, em geral, efetuaram as divulgações obrigatórias previstas na IFRS 7 no que concerne ao risco de mercado. Estes resultados são consistentes com os obtidos por Otham e Ameer (2009). No entanto, as divulgações incluem, essencialmente, informações referidas na norma, sem serem específicas à realidade da empresa em concreto.…”

Stochastic calculus and derivatives pricing in the Nigerian stock market

“…In the Malaysian stock market, Ameer (2009) discovers that there is a significant positive correlation between total earning and the use of derivatives. According to Randall Dodd and Griffith Jones (2007), there is a substantial use of derivative products in Chile and Brazil financial markets.…”

“…Also, since petroleum products and crude oil prices fluctuate regularly and these products are the mainstay of the Nigerian economy, there is the need for policy makers in the nation's financial industry to devise ways of stabilizing the foreign exchange earnings, through the use of some derivative products like forwards and options in trading petroleum products. In the Malaysian market, Ameer (2009) finds that there is a significant positive correlation between total earning and the use of derivatives and those derivatives have value relevance.…”