An empirical study of usage of interest rate swaps among Indian mid-cap corporates

Subhamoy Chatterjee and R.P. Mohanty

Journal of Advances in Management Research, 2024, vol. 21, issue 2, 228-244

Abstract: Purpose - Interest rate derivatives (IRDs) are the essential components of financial risk management and are used across various industry sectors. The objective is to analyze the differences in approach to managing interest rate risks between the Indian corporates that execute IRDs and the ones that do not. Design/methodology/approach - Interest rate fluctuations require Indian corporates to hedge their exposures in foreign currency interest rates. This is all the more true for mid-sized corporates because of their balance sheet exposures. Additionally, they may not have the resources to formulate risk management policies. This paper analyzes data collected from financial statements of a diverse set of companies that use IRD and helps in formulating such a strategy. Findings - The results indicate significant differences for some of the parameters like information asymmetry and agency cost between users and non-users of IRDs. The study further suggests causality between users of derivatives and parameters like size, growth and debt. Research limitations/implications - The study compares users and non-users of IRDs, thereby identifying factors unique to users of IRDs. It also studies causality relations which explain the motivation to do IRDs. Thus, it enables risk managers to use this as a reference point to decide on their strategies. Originality/value - While there are multiple studies across geographies and sectors including commercial banks in India on the usage of interest rate swaps, this study focuses on Indian mid-tier corporates. Furthermore, the study distinguishes between users and non-users based on financial parameters, which in turn would provide a framework for decision-hedging strategies.

Keywords: Financial risk management; Interest rate risks; Interest rate derivatives; Indian financial market; Mid-tier corporations; Fixed and floating rate; Risk management policies; Information asymmetry; Derivatives; Univariate and multi-variate analysis (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jamrpp:jamr-05-2023-0111

DOI: 10.1108/JAMR-05-2023-0111

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