Further evidence on the corporate use of derivatives in Australia : the case of foreign currency and interest rate instruments

Nguyen, Hoa and Faff, Robert 2003, Further evidence on the corporate use of derivatives in Australia : the case of foreign currency and interest rate instruments, Australian journal of management, vol. 28, no. 3, pp. 307-317.

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Title Further evidence on the corporate use of derivatives in Australia : the case of foreign currency and interest rate instruments
Author(s) Nguyen, Hoa
Faff, Robert
Journal name Australian journal of management
Volume number 28
Issue number 3
Start page 307
End page 317
Publisher Australian Graduate School of Management
Place of publication Randwick, N.S.W.
Publication date 2003-12
ISSN 0312-8962
1327-2020
Keyword(s) hedging
foreign currency derivatives
interest rate derivatives
Summary In a recent issue of this journal Nguyen and Faff (2002) reported on an empirical exploration of the motives behind the aggregate use of financial derivatives by Australian companies. Employing the same sample of firms, the current paper extends their analysis to investigate similar issues, this time focussing separately on foreign currency and interest rate derivatives. At a specific level, our results reveal the following. A firm is more likely to use foreign currency derivatives if it is large and has more debt in its capital structure. Interest rate derivatives, on the other hand, are more likely to be used if a firm is larger, more levered, more liquid and pays higher dividends. These results are consistent with existing hedging theories. Market to book value (proxying growth opportunities), however, portrays an inconsistent relationship with the likelihood of interest rate derivative usage. When it comes to the extent of usage, a firm uses foreign currency derivatives more extensively if it is smaller, pays higher dividends and has more debt. Similarly, interest rate derivatives are used more extensively to address a high level of debt and a high dividend payout policy. At a general level, the current study confirms the core finding of Nguyen and Faff (2002), namely, that Australian companies use derivatives with a view to value maximisation.
Language eng
Field of Research 150201 Finance
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2003, Australian Graduate School of Management
Persistent URL http://hdl.handle.net/10536/DRO/DU:30004329

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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