Derivative Initiative: Does the Use of Financial Derivatives Influence Firm Value in the Philippine Context?

• Main Authors: Arrastia, Julia Alfonso D., Balagot, Christina Angela N., Go, Joseph Anthony C., Lacuna, Dominique Ann Philomena V.
• Format: text
• Published: Animo Repository 2020
• Subjects: derivatives; hedging; risk management; firm value; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/res_aki/119; https://animorepository.dlsu.edu.ph/context/res_aki/article/1112/viewcontent/Derivative_Initiative_Does_the_Use_of_Financial_Derivatives_Influence_Firm_Value_in_the_Philippine_Context.pdf
• Institution: De La Salle University

Firms use financial derivatives as a way to hedge risky transactions to avoid financial risks. Studies have focused on firms’ use of financial derivatives in developed countries. However, there is limited research done on emerging markets like the Philippines because these economies have only recently adapted advanced reporting standards that obligate the disclosure of the nature and extent of risks resulting from the use of financial instruments. We used Tobin’s Q ratio to proxy for firm value and determine the presence of a hedging premium. Because derivatives are used by firms to hedge against currency risks, interest rate risks, and commodity price risks, we hypothesize that the use of financial derivatives by firms has a positive and statistically significant effect on firm value.