Management Motivation for Using Financial Derivatives in Australia

Karen Benson and Barry Oliver
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Karen Benson: UQ Business School, University of Queensland, QLD 4072.
Barry Oliver: School of Finance and Applied Statistics, Australian National University ACT, 0200.

Australian Journal of Management, 2004, vol. 29, issue 2, 225-242

Abstract: This study takes a direct approach to determine management motivation for the use of financial derivatives. We survey a sample of Australian firms on attitudes to derivative use and financial risk management. Management views are sought on the importance of a series of theoretical reasons for using derivatives. Generally, we find that managers are focused on the broad reduction of risk and volatility of cash flows and earnings in using derivatives. Specific issues such as reducing bankruptcy costs, debt levels and taxation are not considered as important. A further interesting result from this research is that even though firms may use derivatives they may not necessarily hedge all of their annual exposures across different financial risks. This helps explain the inconsistency of results in many empirical studies on the determinants of derivative use.

Keywords: DERIVATIVES; RISK MANAGEMENT; HEDGING; FINANCIAL RISK (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:29:y:2004:i:2:p:225-242

DOI: 10.1177/031289620402900205

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