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The relationship between the use of derivatives and firm value under different economic cycles


The relationship between the use of derivatives and firm value under different economic cycles

Yu, Yazhuo (2021) The relationship between the use of derivatives and firm value under different economic cycles. Masters thesis, Concordia University.

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This thesis explores the effect of derivative usage for hedging on firm value. By using a quarterly dataset of North American firms from 2000 to 2017, I examine whether the use of derivatives for hedging adds firm value. I focus on derivatives used for hedging rather than the generalized use of derivatives. Hedging can be an effective method of risk management and active risk management can lead to an increase in firm value. Firms are classified as ineffective speculators (IS firms) and effective hedgers (EH firms) based on their risk exposures before and after the use of derivatives. I add the economic cycles as another factor that might affect the effect of hedging on firm value. The results indicate that the use of derivatives for hedging adds firm value and the effect can last for longer than one year. For smaller firms, the value increase arising from hedging is more significant than that for larger firms. During economic expansions, hedging adds more value than that during economic recessions.

Divisions:Concordia University > John Molson School of Business > Finance
Item Type:Thesis (Masters)
Authors:Yu, Yazhuo
Institution:Concordia University
Degree Name:M. Sc.
Date:May 2021
Thesis Supervisor(s):Shanker, Latha
Keywords:derivatives, hedging, risk management, firm value
ID Code:988492
Deposited By: Yazhuo Yu
Deposited On:29 Nov 2021 16:26
Last Modified:29 Nov 2021 16:26


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