Derivatives Usage In Risk Management By Turkish Non-financial Firms And Banks: A Comparative Study (original) (raw)
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International Journal of Critical Accounting, 2014
This comparative study examines the reporting of derivatives according to hedge accounting and the effect of derivatives on the financial positions of the banks in the European Union and Turkey. We found that all of the banks in Europe examined in the study reported their hedge purpose derivatives according to hedge accounting. In contrast, only a small portion of banks in Turkey prefer to use hedge accounting. We conclude that avoiding volatility of reported earnings can be the most important motive to apply hedge accounting for banks in Europe given their high volume of derivatives. Since the volume of derivatives is very low for banks in Turkey, volatility of earnings is not a concern. However, the burdensome requirements for hedge accounting in International Accounting Standards (IAS) 39 and lack of qualified personnel with knowledge of derivative accounting may be the reason why they do not utilise its treatment.
The Usage Of Derivatives In Financial Risk Management By Companies In Bosnia And Herzegovina
2012
The main objective of this paper is to determine the scope of the use of derivatives by companies in B&H for specific purposes of financial risk management. The aim is to provide a comparative analysis with companies from Slovenia and Croatia in order to determine if companies in B&H use the hedging instruments appropriately, and to suggest possible improvements of their practices for managing financial risks. The basic goals of the paper are to explore if companies in B&H use derivatives for risk management purposes to the same extent as Slovenian and Croatian companies and to determine if B&H companies properly hedge their financial risks. The paper also aims to give suggestions to B&H companies for improvements of their risk management practices in order to ensure more efficient and effective financial risk hedging by using derivatives, primarily available through banks on B&H financial markets.
Derivatives are the major icon among risk management practices. Firms usually use derivatives to hedge their foreign exchange and interest rate risk. This study aims to examine the determinants' of corporate hedging policies and derivative usage in risk management particularly with respect to Pakistan, as the political and economic conditions in Pakistan are highly volatile which intends the corporations to handle and mitigate their risk through channelizing the derivatives. Secondary data of 75 non financial firms listed in Karachi Stock Exchange was collected over the period 2007-2011to regress empiricallyfor achieving the aim of this study. Mann-Whitney U test was used to distinguish the derivative user and non user. Findings of this test characterize users as large size, higher growth opportunities, cash flow volatility, foreign exchange and interest rate exposure. Moreover this study finds that there is a significant relationship between the use of derivatives and foreign purchase, liquidity, firm growth and size. Our findings suggest that derivative users have competitive edge over the non user, as they get economies of scale and proper risk management through using these kinds of derivative instruments.
The Relationship between Hedge Derivative Usage and Volatility of Profits in Banking Sector
The purpose of this study is to investigate the effects of the use of derivative instruments with intention of hedging on the profitability of the banks. Financial theory suggests that properly used hedge derivatives should increase profitability of firms while reducing the volatility of these profits by refining a significant portion of unsystematic risk from investment and cash flow decisions.
Research in World Economy, 2014
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.
Present study attempts to model the determinants of profitability for the Turkish banking industry. This paper employs a dynamic panel framework for 30 Turkish commercial banks while using a comprehensive set of bank level, industry level and macroeconomic explanatory variables. The novelty of this study is to consider the consequences of the derivatives usage on the banks' profits. The findings point out that derivatives are mainly used for hedging purposes, and the bank managers put the safety of the system in the first place. Accordingly, the internal factors such as capital and the credit risk are the most influential ones. Özet Bu çalışma, Türk Bankacılık Sektörü'nde karlılığı belirleyen faktörleri incelemektedir. Bu amaçla, 30 ticari bankanın verileri dinamik panel veri teknikleri ile incelenmiştir. Bu bankalara ilişkin, yönetimsel, sektörel ve makroekonomik pek çok değişken analize dahil edilmiştir. Çalışmanın literatüre katkısı, türev araç kullanımının karlılık üzerindeki etkisini özellikle dikkate almasıdır. Sonuçlar, türev araçların genellikle riskten korunma amaçlı kullanıldığını; banka yöneticilerinin sistemin güvenliğini ilk sırada tuttuklarını göstermektedir. Bununla bağlantılı olarak, sermaye ve kredi riski gibi içsel değişkenlerin karlılık üzerinde en etkili faktörler olduğu ortaya konmuştur.
International Journal of Accounting, Auditing and Performance Evaluation
This paper investigates the adoption of hedge accounting by Malaysian listed companies in reporting their use of derivatives for hedging activities. Based on a sample of 300 Malaysian listed companies, we found that only 162 companies (54 percent) used derivatives to hedge their financial risks exposure and only 30 percent of the companies chose to apply hedge accounting. In addition, this study examines the relationship between the company specific characteristics and their application of hedge accounting. The logistic regression results showed that the decision to apply hedge accounting by Malaysian companies is positively influenced by the company size and leverage. The implications of the findings were discussed.
This study aims to investigate the factors that affect the derivatives usage of non-financial listed firms of Pakistan to hedge foreign exchange exposure by using data of 51 non-financial firms listed on Pakistan stock exchange from 2010-2013. The dependent variable was derivative usage which was used as dummy since no financial information was disclosed in company annual reports but the decision of usage or not. Non-parametric tests were uses which is univariate analysis to calculate the mean difference between users and non-users of derivative usage for hedging purposes. Further, logistic regression model was used to analyze the impact of financial distress costs, tax convexity, underinvestment problem, profitability, managerial holdings of the company and foreign sales on firm's decision to whether they use FX derivatives for hedging purposes or not. The result shows that financially distressed firms, having lower managerial holdings and lower interest coverage ration with high foreign sales are using FX derivatives in Pakistan.
Usefulness Of Derivative Instruments In Emerging Markets: Turkish Experience
International Business & Economics Research Journal (IBER), 2011
This article presents an overview of derivative markets, definitions of derivative investment instruments, development of global derivative markets and the applicability of derivative markets in Turkey, given their economic value added to the Turkish economy. Readers will acquire insight into investing in various investment instruments and hedging against risk. Turkish derivative markets will be described, supportive statistical data will be presented, and readers will be introduced to the development and current status of these derivative markets in the Turkish emerging market. Finally, the contribution of derivative instruments and derivative markets to the Turkish economy will be discussed.
Derivatives use and and risk management practices by UK nonfinancial companies
Purpose – 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. Design/methodology/approach – 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. Findings – 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. Research limitations/implications – 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. Originality/value – To highlight the extent of derivatives usage and risk management practices in UK nonfinancial companies.