The Effect of Financial Derivatives on the Financial Performance of Firms in the Financial Sector in Ghana (original) (raw)
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Financial Derivatives and Its Effects on Financial Performance of Deposit Money Banks in Nigeria
This study examined the relationship between financial derivatives and financial performance of deposit money banks (DMBs) in Nigeria from the period of 2013 to 2022 (10years). Financial derivatives [proxied with Financial Liabilities Derivatives (FLD), Foreign Exchange Derivatives (FED), Trading Income on Derivatives (TID), Loan and Advance to Customers (LADC) and Bank Size (BS)] (independent variables) and financial performance [proxied with Return on Assets (ROA)]. The Ex-Post Facto research design was used. Ex-Post Facto research design aids in answering the who, what, when, where, and how questions linked with a certain study problem. The ex-post facto research design is used to acquire information on the current state of a phenomenon and to define 'what exists' in terms of variables or conditions in a setting that is specifically relevant to the issue under investigation. Data on financial derivatives and financial performance were obtained from the annual reports and accounts of ten (10) DMBs listed in Nigeria Exchange Group that has international presence. The data set was described using descriptive statistics, followed by the correlation analysis was used to ascertain the co-movement of the independent variables in relation to the dependent variable and several diagnostics tests. Since the data are panel series that the unit root test was conducted to ascertain if the data are stationary in order to have accurate regression result followed by single equation co-integration test while the Multiple Regression analysis were employed with the aid of E-VIEW version 9.0 for the purpose of testing the research hypotheses raised in chapter one. It evident that measures of financial derivatives used has mixed effects on ROE of DMBs in Nigeria. However, majority of the independent variables such TID, LADC and BS has significant effects on ROE of DMBs while FLD and FED established an insignificant effects on ROE of DMBs in Nigeria. Hence, the study concluded that a financial derivative has significant effects on financial performance of DMBs in Nigeria. The study recommended that DMBs in Nigeria should minimize their financial derivative liabilities holdings, since it has detrimental effect on their ROE. Limit their financial derivative liabilities and ensure that financial derivative assets are better utilized.
The relationship between derivatives and financial performance of commercial banks in Kenya
2012
Increasing globalization of commerce is exposing firms to various financial risks, unrelated to their lines of business. Some of these risks are firm or situation specific with no ready-made exchange traded instruments to offset such risks. The management of these risks has created a new line of financial derivatives, the over-the-counter (OTC) derivatives. The objective of this study was to establish the relationship between derivatives and profitability of commercial banks in Kenya. A descriptive research design is concerned with describing characteristics of a problem. It is appropriate for this project because it helped to portray accurate profile of events and situations in the emerging derivative markets. Statistical package for social scientists (SPSS) software version 17 was used to analyze the data. Data was obtained through secondary sources. The secondary data was obtained from various financial journals; internet published financial statements and documents. The population of the study consists of all the 43commercial banks in Kenya as at 31 st December 2011, licensed and registered under the Banking Act. The study found that for commercial banks in Kenya to remain profitable they should have a put into
Effect of Usage of Derivative Financial Instruments on Financial Performance of Non-Financial Firms
International Journal of Finance and Accounting
Purpose: The purpose of this study is to examine the effect of derivative financial instrument utilization on the financial performance of non-financial firms recorded at the Nairobi Securities Exchange. The objectives that guided this study are to assess the impact of use of derivatives in risk management on financial performance of non-financial firms listed on the Nairobi Securities Exchange (NSE). Methodology: The study embraced the regression model. A census of all the 47 non-financial firms listed at the NSE as at December 2017 constituted the target population where only 11 listed non-financial firms were financial derivative instruments users. The study utilized qualitative and quantitative research techniques especially the utilization of descriptive research design. The data for this study was collected using questionnaires, audited financial statements and annual reports of individual firms for the multi year time frame covering 2013-2017 (the two years comprehensive). Re...
Financial Derivatives and Profitability of Selected Deposit Money Banks in Nigeria
ACTA UNIVERSITATIS DANUBIUS, 2020
The study examines the effect of financial derivatives on the profitability of selected deposit money banks in Nigeria. Panel regression model was used by collecting data from the annual financial report of all the eight (8) banks with international authorization status in Nigeria and covers a period of five years between 2012 and 2017. The independent variable, financial derivative was proxies using financial derivative liabilities (FDL) and financial derivative assets (FDA) with loan and advances to customers (LTC) as a controlling variable. Pooled Ordinary Least Square (OLS), fixed effects and random effects tests were conducted on the variables and were also subjected to the Hausman test to choose the preferred estimator. The result indicates that the model is positive and significant. FDA and LTC have positive and significant effect on the profitability of deposit money banks in Nigeria while FDL is negative and insignificant. The study therefore concludes that financial derivative has positive and significant effect on the profitability of deposit money banks in Nigeria. Based on the findings, the study recommends that deposit money banks should increase their loan asset to better improve their profit. Limit their financial derivative liabilities and ensure that financial derivative assets are better utilized.
The Corporate Use of Derivatives by Listed Non-Financial Firms in Africa
Corporate Ownership and Control, 2013
This paper presents the results of an extensive analysis of derivative use by 692 companies in 20 countries across the African continent. The results show that 29% of non-financial companies in Africa use derivatives but that derivative use is dominated by firms within South Africa. The study finds that 54% of firms in South Africa use derivatives but only 5% of non-financial firms in Africa (excluding South Africa) use derivatives for hedging purposes. The majority of derivative use is directed toward the management of currency risks and the derivative instrument of choice is OTC forwards. Swaps are used to hedge interest rate risk and minimal use is made of OTC or exchange traded options and futures.
British Journal of Economics, Management & Trade, 2017
There is a general perception that financial derivatives have significant impact on firm performance when they are used to hedge financial risks. The study attempted to examine the effect of the use of forwards, futures, options and swaps to hedge interest rate and foreign exchange rate risks of 5 financial and 5 nonfinancial firms selected from the UK FTSE 100 index, between the years 2005-2014, with the objectives of supporting or refuting extant literature on the benefits of hedging, testing the impact of hedging on return on assets and capital employed, as well as revealing which financial derivative assert the highest influence in the period. The panel least squares (PLS) regression analysis was used on a balanced panel dataset of 100 observations. The results revealed the following: (1) financial firms tend to hedge more of interest rate risks while nonfinancial firms hedge more of foreign exchange rate risks;(2) hedging interest rate risks by both groups with the use of a combination of forwards and futures derivatives was found to be positive and statistically significant with return on assets, hence increases firm performance, but directly has a
Financial derivatives and the commercial banks performance in UAE
Accounting, 2023
The introduction of derivatives at the financial market of the United Arab Emirate (UAE) is to enhance liquidity and broadens the range of securities. This is because it brings exciting opportunities for investors to diversify their investment in an efficient and cost-effective way. Evidence from previous studies has shown that financial market derivatives help to reduce risk. Even though trading losses produced by unsuitable derivative activity are frequently big enough to create financial problems and even bankruptcy, there is minimal research on how bank profitability and performance are affected. The study examines the determinants of financial derivatives on the performance of commercial banks in UAE and the financial risk exposure between derivatives financial assets and derivatives financial liabilities. The research employs Pecking order theory, panel ARDL and data from 30 commercial banks' financial statements in 2020 in UAE. The study found that an increase in the level of return on assets will create an increase in traded financial derivatives that will enhance bank performance by a high level of percentage. Stability of the banking sector in UAE is recommended to enhance better performances of commercial banks on financial derivatives in UAE.
2021
This dissertation investigates the extent of derivatives use in South Africa. In addition, it examines the effect of derivatives use on firm risk and value. The dissertation is based on a sample of 91 South African non-financial firms listed on the FTSE/JSE Africa All Share Index on the JSE over the sample period 2012 to 2016. Firm risk is measured using total risk, systematic risk and unsystematic risk while the Tobin's Q is used as the proxy for firm value. The results of this dissertation show that 62% of firms included in this sample use derivatives. Foreign currency derivatives were the most commonly used as 80.3% of firms used them followed by interest rate derivatives at 46% and then commodity price derivatives at 21.8%. This dissertation provides evidence that the use of derivatives significantly reduces total risk and unsystematic risk. However, the use of derivative does not have an effect on systematic risk. The use of derivatives increases firm value although this in...
The commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets especially in Golf Cooperation Council " GCC " countries. In this paper we investigated the effect of financial derivatives use on the performance of commercial banks in the " GCC " countries, where the study included nineteen banks distributed among the countries (Bahrain, Emirate, Qatar and Saudi) during the period 2000-2013, using the regression model with unbalanced panel data. We concluded the acceptance of dual fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank and each country. That the use of derivatives is working on the reduction of no systemic risks, which improves the performance of commercial banks especially in the crisis period.
European Journal of Business and Management, 2017
The purposes of this research are to determine factors influencing firm derivatives usage and to analyze its effect on firm risk. The objects of this research are non-financial firms listed on Indonesian Stock Exchange for the year of 2015. Financial performance and corporate governance are employed in this research as important factors influencing derivatives usage and firm risk. Current ratio, debt to equity ratio, return on assets and total assets turnover ratio are used to assess financial performance. Managerial ownership, independence of board commissioners and commissioners’ education are used to assess corporate governance. The firm risk is measured by calculating the volatility of firm daily stock returns. This research employs path analysis in order to examine the relationship between financial performance, corporate governance, derivatives usage, and firm risk. The main finding of this research is that the derivatives usage has a negative relationship with firm risk. Ther...