Use of Derivatives and Analysts’ Forecasts: New Evidence from Non‐financial Brazilian Companies

Rafael Moreira Antônio, Fabiano Guasti Lima, Rogiene Batista dos Santos and Alex Augusto Timm Rathke

Australian Accounting Review, 2019, vol. 29, issue 1, 220-234

Abstract: This study investigates whether market analysts’ forecasts are influenced by the presence of derivative financial instruments in listed firms. From a sample of firms comprising 1173 derivative users and 7797 non‐users for the 2006–14 period, the results indicate the existence of less error behaviour (bias) on earnings per share forecasts for derivative user firms compared to non‐user firms. This finding suggests that these instruments may be used to protect businesses and provide greater stability in the results of companies that use them. The presence of derivative financial instruments is increasing among listed firms, and management can use them for hedging or speculation (thus mitigating or increasing risk). The literature contains few studies on this issue, and the general understanding relies on the assumption that derivative financial instruments provide relevant information for decision making.

Date: 2019
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