Do derivatives benefit shareholders? Evidence from India

Neeru Chaudhry and Aastha Gupta

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: We show that for a sample of 1,882 publicly listed Indian firms and sample period from 2016 to 2021, derivative-usage significantly reduces the idiosyncratic stock return volatility. The negative effect of derivative-usage on idiosyncratic volatility is more pronounced for firms with poor information environment, and financially-constrained and distressed firms. The quality of corporate governance does not influence the relationship between derivative-usage and firm risk. The valuation of derivative-user firms is significantly higher than that of non-derivative-user firms. Overall, using derivatives benefits the firms using them, both in terms of reducing risk and creating value for the shareholders.

Keywords: Derivatives; Idiosyncratic stock return volatility; Idiosyncratic risk; Idiosyncratic volatility (search for similar items in EconPapers)
JEL-codes: G12 G30 H26 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003847

DOI: 10.1016/j.frl.2023.104012

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