Abstract #302131

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JSM 2003 Abstract #302131
Activity Number: 415
Type: Contributed
Date/Time: Wednesday, August 6, 2003 : 2:00 PM to 3:50 PM
Sponsor: Business & Economics Statistics Section
Abstract - #302131
Title: The Role of Derivatives in Firms' Financing Opportunities and Growth
Author(s): Hong V. Nguyen*+ and Michael Mensah and Huldah Ryan
Companies: University of Scranton and University of Scranton and Iona College
Address: School of Management, Scranton, PA, 18510,
Keywords: derivatives ; growth ; financing
Abstract:

Derivatives, such as swaps, forwards, futures, calls, floors, collars, and puts, are financial instruments that derive their values from some underlying asset. These financial instruments have become an important tool for firms to manage their risks, including financial price risks related to changes in interest rates, foreign exchanges, or commodity prices. The explosion in the use of derivatives beginning in the 1980s and the 1990s has resulted in a series of new reporting requirements issued by the Financial Accounting Standard Boards (FASB) in the 1990s, including SFAS 119 and SFAS 133. Extant studies show the widespread and increasing use of derivatives, as well as the informative nature of these derivative use disclosures. However, due to the lack of reported data on firms' use of derivatives, especially on nonfinancial firms (a focus of this paper), empirical research in this area has been mostly limited to survey data. This paper takes advantage of the more recently greater availability of reported data on derivatives use to examine a number of issues related to the use of derivatives, including its effect on firms' financing and the consequent growth.

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