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Previous studies show that crude oil is negatively correlated with stocks but has almost the same rate of return as stocks, and so adding crude oil into a portfolio with equities can provide significant diversification benefits for the portfolio. Given the diversification benefit of crude oil mixed with equities, we examine the value effect of crude oil derivatives transactions by oil and gas producers. Differing from traditional corporate risk management literature, this study examines corporate derivatives transactions from the shareholders' diversification perspective. The results show that crude oil derivatives transactions by oil and gas producers do impact value. If oil and gas producing companies stop shorting crude oil derivatives contracts, company stock prices increase significantly. In contrast, if oil and gas producing companies initiate short positions in crude oil derivatives contracts, stock prices tend to drop (still significant, but less so). Thus, hedging by producers is not necessarily good. Transaction limitation is shown to be one of the possible sources of the value effect of corporate derivatives transactions.

The purpose of this paper is to investigate whether CEO compensation scheme may induce some agency conflicts in the foreign exchange risk hedging policy.

Residual exposure is a post-hedging variable computed as the ratio of unrealized foreign exchange risk gains/losses to international sales. The authors follow the optimal hedging theory developed by Smith and Stulz (1985). The residual foreign exchange risk exposure is a way to capture some consequences of the managerial risk aversion, whereas the compensation scheme granted to CEO reveals that of the shareholders. The authors interpret any deviation to the predictions of this theory as a mark that some agency conflicts exist.

CEO compensation (stock-options, shares and so) significantly influence the level of the residual foreign exchange risk exposure. Both in-the-money exercisable options and shares are negatively related to the residual exposure of foreign exchange risk. The authors also document that the effect of agency problems is rather contingent because shares and options have especially a negative impact when the level of foreign exchange risk is relatively high.

The residual FX risk exposure variable the authors promote in this paper completes the traditional proxies used to depict the corporate hedging policy such as the nominal or total fair value of currency derivatives (Davies et al., 2006), use of nominal values (Spanò, 2007), use of fair values of derivatives and the fraction of production hedged (Wang and Fan, 2011). The information that it conveys differs significantly from the one provided by traditional proxies because it captures the year-end post hedging firm’s risk profile.

We investigate the evolution of corporate risk management practices in Slovenian non-financial firms in the period 2004–2009 and compare the findings several surveys conducted for other countries. We mail questionaires to non-financial companies, where the target group included non-financial companies listed on Ljubljana Stock Exchange and the largest exporting companies in Slovenia. We find that the current use of derivatives for hedging purposes is still at a lower level than in the majority of developed countries. The great expansion of Slovenian economy in the period 2004–2008, the development of Slovenian financial system, the convergence of Slovenian and EU accounting standards and recent financial crisis did not sufficiently induce Slovenian firms to adopt risk management practices. The most often stated reasons for the low use of derivatives are (1) insufficient risk exposure, (2) problems with the evaluation and monitoring of derivatives and (3) the costs associated with the implementation of derivatives programme. In our opinion, the institutional environment in Slovenia does not induce managers to undertake proper risk management activities. We argue that not only managers, but also owners and creditors should be more accountable for the decisions they take (or do not take).

The purpose of this paper is to identify the factors affecting firms' decision to use foreign exchange (FX) derivative instruments by using the data of 86 non‐financial firms listed on Karachi Stock Exchange for the period 2004‐2007.

Required data were collected from annual reports of listed firms of Karachi Stock Exchange. Non‐parametric test was used to examine the mean difference between users and non‐users operating characteristics. Logit model was applied to analyze the impact of firm's financial distress costs, underinvestment problem, tax convexity, profitability, managerial ownership and foreign exchange exposure on firms' decision to use FX derivative instruments for hedging.

Results explain that firms having higher foreign sales are more likely to use FX derivative instruments to reduce exchange rate exposure. Moreover, financially distressed large‐size firms with financial constraints and fewer managerial holdings are more likely to use FX derivatives.

Incomplete financial instrument disclosure requirements restricted researchers to using binary variable as a dependent variable instead of notional value or fair value of derivative usage.

The study shows that in the presence of amateur derivative market, Pakistani corporations possessing higher agency costs of debt, agency costs of equity, and financial constraints will benefit more by defining hedging policies coherent with the firm's investment and financing policies in order to enhance firm value.

Until now, no earlier empirical study focused on the determinants of a firm's hedging policies in Pakistan, in the presence of volatile exchange rates,. The current study, therefore, attempts to identify the factors which affect the firm's decision to use derivative instruments for hedging FX exposure of non‐financial firms in Pakistan.

Drawing upon underinvestment theory and clientele effect hypothesis, this paper aims to examine the effects of foreign currency (forex) exposure and Shari’ah-compliant status on firms’ financial hedging strategy.

Based on data of 250 nonfinancial firms listed on Bursa Malaysia from 2010 to 2018 (2,250 firm-year observations), the authors test the impact of forex exposure based on a vector of foreign-denominated cash flows (FCF) indicators and firms’ Sharīʿah-compliant status on two proxies of financial hedging decisions, namely, the ratio of the notional value of currency derivatives to total assets and a binomial measure of hedging status. The hedging decision models are estimated using panel logistic regression and system generalized method of moments.

The results indicate significant positive effects of the forex exposure indicators on firms’ propensity to hedge. However, the impact of forex exposure is most prevalent via total FCF. The results also reveal significant positive effects of Sharīʿah-compliant status on firms’ propensity to hedge but its negative impacts on the value of currency derivatives they use. The results suggest that Sharīʿah-compliant firms refrain from engaging in currency derivatives to avoid riba’ and subsequently subdue the clientele effect. However, when the forex exposure reaches higher levels, engagement in currency derivatives becomes a matter of tentative necessity (dharurat).

This study relies exclusively on the disclosure of foreign currency risk and management data in the annual reports of listed companies. Consequently, this limits the sample size to only those nonfinancial listed companies with complete data for the study period. Also, since none of the companies reports using Sharīʿah-compliant derivatives, the authors thus assume that they use derivative instruments that tolerate “riba.”

Given the significance of forex exposure on hedging decisions, the accounting profession must strictly adopt FRS 7 and FRS 139 for all listed firms to avoid market scrutiny and sustain their clientele. The results also call for the Islamic market regulators to include mandatory disclosure of conventional currency derivatives in screening firms for clearly prohibited activities to help enhance the credibility of its Islamic financial market.

Due to difficulty accessing relevant cash flow data, the study is among the few studies that measure forex exposure using FCF and test more proxy indicators. This study is perhaps the first to examine the Shari’ah perspective on currency derivatives in corporate forex risk management.

This paper aims to provide a comprehensive empirical assessment of major contemporary corporate hedging theories, i.e. financial theory, agency theory, stakeholder theory and new institutional economics.

Hypotheses regarding the determinants of hedging are tested on a sample of 150 companies listed on the Warsaw Stock Exchange. The panel covers a period of five years (2001‐2005). Unlike in previous research the tests are organised around theories rather than individual hypotheses. In addition to classic tests, CART analysis is used to verify hypotheses.

The results show low empirical verification of all theories considered. However, the results support some single hypotheses. Tests identified currency exposure, market‐to‐book value, IT and service sectors and size as being determinants of hedging.

The results provide evidence for the low usefulness of contemporary theories. New models are needed to explain hedging behaviour more accurately.

The results identify characteristics shared by firms that use hedging. Companies considering implementing hedging can check whether they share these characteristics.

This paper adds to risk management research by providing strong empirical evidence of theory verification status. It can serve as a base for future conceptual research.

The past twenty years have seen a significant increase in the use of derivative financial instruments by companies throughout the world (Berkman and Bradbury 1996; Berkman, Bradbury and Magan, 1997a; Berkman, Bradbury, Hancock and Innes, 1997b; Bodnar, Hayt, Marston and Smithson, 1995; Bodnar, Hayt and Marston, 1996; 1998; Collier and Davis, 1985). This paper examines the impact of Financial Reporting Standard 13: Derivatives and Other Financial Instruments, Implementation and Disclosures, on treasury department activities. In particular, the researchers conducted interviews with UK treasury department staff to assess their general attitudes to, and the perceived impact of, FRS 13. In general, the treasurers responded favourably to the standard, and considered the narrative disclosures to be particularly useful. The numerical disclosures were considered to be very detailed and specialised; interviewees thought that users might have difficulty in understanding them. However, the implementation of IAS 39, that becomes mandatory for all EC countries from 2005, was causing treasurers far more concern.

This paper aims to examine the interest rate risk management (IRRM) practices of UK‐listed companies. In particular, it examines the significance of interest rate risk (IRR) to these companies as well as the risk management practices adopted, including: the methods used to assess the level of IRR and the types of interest rate forecasts used in the process; derivatives activity; and corporate governance, reporting and control.

A series of semi‐structured interviews was conducted with the treasurers of ten UK companies in order to provide an in‐depth analysis of IRRM.

The results of this research suggest that IRR is important to UK companies and that their IRR hedging strategies are geared towards managing shareholder considerations and protecting banking covenants and corporate credit ratings. Moreover, companies rely extensively on financial derivatives to manage their IRR although their corporate governance practices relating to derivatives usage, in some instances, are lacking. Finally, there was a mixed response in relation to the implications of International Accounting Standard (IAS) 39; while some companies fear that the new standard may curb managerial practices, others are in favour of the more stringent reporting requirements.

The research indicates that IRRM is important to UK companies, and especially so for firms that have loan covenants in place. Thus, the interest rate decisions of the Bank of England will have a major effect on UK industry. The study also suggests that the implementation of IAS 39 may have unanticipated consequences on the risk management behaviour of UK firms as the possible reduction in the use of options and exchange‐traded products may result in less efficient IRRM within companies. Finally, the research suggests that corporate governance practices relating to financial risk management need to be improved.

The use of an interview‐based approach facilitates an investigation of the IRRM practices of companies on an individual basis rather than the aggregated analysis offered by most studies in the area. In addition, the paper addresses the more qualitative aspects of IRRM, such as the form and significance of IRR, IRR policy and strategy, and the use of derivative instruments.

In the last two decades, a number of studies have examined the risk management practices within nonfinancial companies. For instance, some studies report on the use of derivatives by nonfinancial firms. Yet, another group of researchers has investigated the determinants of corporate hedging policies. These and other studies of similar focus have made important contributions to the literature. This study sheds light on derivatives use and risk management practices in the UK market.

This paper presents the results of a questionnaire survey, which focused on determining the reasons for using or not using derivatives for 401 UK nonfinancial companies. Furthermore, it investigates the extent to which derivatives are used, and how they are used.

The results indicate that larger firms are more likely to use derivatives than medium and smaller firms, public companies are more likely to use derivatives than private firms, and derivatives usage is greatest among international firms. The results also show that, of firms not using derivatives, half of firms do not use these derivative instruments because their exposures are not significant and that the most important reasons they do not use derivatives are: concerns about disclosures of derivatives activity required under FASB rules, and costs of establishing and maintaining derivatives programmes exceed the expected benefits. The results show that foreign exchange risk is the risk most commonly managed with derivatives and interest rate risk is the next most commonly managed risk. The results also indicate that the most important reason for using hedging with derivatives is managing the volatility in cash flows.

As with other survey research, a major limitation is that responses might represent personal opinions. We cannot verify that the opinions coincide with actions. We suggest that further research could improve the understanding of firms’ derivatives use by including more detailed data, different time spans, and larger samples.

To highlight the extent of derivatives usage and risk management practices in UK nonfinancial companies.